Blackrock (BLK) 10-K 2019 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2019

or

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

For the transition period from               to             .

Commission File No. 001-33099

BlackRock, Inc.

(Exact name of registrant as specified in its charter)

Delaware	32-0174431
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

55 East 52nd Street, New York, NY 10055

(Address of Principal Executive Offices)

(212) 810-5300

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.01 par value	BLK	New York Stock Exchange
1.250% Notes due 2025	BLK25	New York Stock Exchange

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

None

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

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

Large accelerated filer ☒ Accelerated filer ☐

       Non-accelerated filer ☐

            Smaller reporting company☐

            Emerging growth company ☐

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

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

The aggregate market value of the voting common stock and nonvoting common stock equivalents held by nonaffiliates of the registrant as of June 30, 2019 was approximately $71.9 billion.

As of January 31, 2020, there were 154,827,534 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference herein:

Portions of the definitive Proxy Statement of BlackRock, Inc. to be filed pursuant to Regulation 14A of the general rules and regulations under the Securities Exchange Act of 1934, as amended, for the 2020 annual meeting of stockholders to be held on May 21, 2020 (“Proxy Statement”) are incorporated by reference into Part III of this Form 10-K.

BlackRock, Inc.

Table of Contents

PART I
Item 1	Business	1
Item 1A	Risk Factors	18
Item 1B	Unresolved Staff Comments	29
Item 2	Properties	30
Item 3	Legal Proceedings	30
Item 4	Mine Safety Disclosures	30
PART II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6	Selected Financial Data	32
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	58
Item 8	Financial Statements and Supplemental Data	59
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	59
Item 9A	Controls and Procedures	59
Item 9B	Other Information	62
PART III
Item 10	Directors, Executive Officers and Corporate Governance	62
Item 11	Executive Compensation	62
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	62
Item 13	Certain Relationships and Related Transactions, and Director Independence	62
Item 14	Principal Accountant Fees and Services	62
PART IV
Item 15	Exhibits and Financial Statement Schedules	62
	Signatures	66

Part I

Item 1. Business

Overview

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) is a leading publicly traded investment management firm with $7.43 trillion of assets under management (“AUM”) at December 31, 2019. With approximately 16,200 employees in more than 30 countries who serve clients in over 100 countries across the globe, BlackRock provides a broad range of investment 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. 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 technology services, including the investment and risk management technology platform, Aladdin^®, Aladdin Wealth, eFront, Cachematrix and FutureAdvisor, as well as advisory services and solutions to a broad base of institutional and wealth management clients. The Company is highly regulated and manages its clients’ assets as a fiduciary. 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, 2019, The PNC Financial Services Group, Inc. (“PNC”) held 22.0% of BlackRock’s voting common stock and 22.4% of BlackRock’s capital stock, which includes outstanding common and nonvoting preferred stock.

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

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

• the Company’s global reach and commitment to best practices around the world, with approximately 50% of employees outside the United States serving clients locally and supporting local investment capabilities. Approximately 40% of total AUM is managed for clients domiciled outside the United States;

• the Company’s breadth of investment strategies, including market-cap weighted index, factors, systematic active, traditional fundamental active, high conviction alpha and illiquid alternative product offerings, which enhance its ability to tailor 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, increasing demand for sustainable investment strategies and barbelling using index, active and illiquid alternatives products; and

• the Company’s longstanding commitment to innovation, technology services and the continued development of, and increased interest in, BlackRock technology products and solutions, including Aladdin, Aladdin Wealth, eFront, Cachematrix, and FutureAdvisor. This commitment is further extended by minority investments in distribution technologies including Scalable Capital, iCapital, Acorns and Envestnet.

BlackRock operates in a global marketplace impacted by changing market dynamics and economic uncertainty, factors that can significantly affect earnings and stockholder returns in any given period.

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

1

Financial Highlights

(in millions, except per share data)
GAAP:	2019			2018			2017(4)			2016(4)			2015(4)
Total revenue	$	14,539		$	14,198		$	13,600		$	12,261		$	11,401
Operating income	$	5,551		$	5,457		$	5,254		$	4,565		$	4,664
Operating margin		38.2	%		38.4	%		38.6	%		37.2	%		40.9	%
Nonoperating income (expense)(1)	$	186		$	(76	)	$	(32	)	$	(108	)	$	(69	)
Net income attributable to BlackRock, Inc.	$	4,476		$	4,305		$	4,952		$	3,168		$	3,345
Diluted earnings per common share	$	28.43		$	26.58		$	30.12		$	19.02		$	19.79

(in millions, except per share data)
As adjusted(2):	2019			2018			2017(4)			2016(4)			2015(4)
Operating income	$	5,551		$	5,531		$	5,269		$	4,669		$	4,695
Operating margin		43.7	%		44.3	%		44.1	%		43.8	%		42.9	%
Nonoperating income (expense)(1)	$	186		$	(76	)	$	(32	)	$	(108	)	$	(70	)
Net income attributable to BlackRock, Inc.(3)	$	4,484		$	4,361		$	3,698		$	3,210		$	3,313
Diluted earnings per common share(3)	$	28.48		$	26.93		$	22.49		$	19.27		$	19.60

(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 2019 and 2018.

In 2016, a restructuring charge, primarily comprised of severance and accelerated amortization expense of previously granted compensation awards, has been excluded to provide more meaningful analysis of BlackRock’s ongoing operations and to ensure comparability among periods presented. In 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). In 2017, 2016 and 2015, 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.

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

(4) Results for 2017 and 2016 were recast to reflect the adoption of the new revenue recognition standard. Results for 2015 reflect accounting guidance prior to the adoption of the new revenue recognition standard.

Assets Under Management

The Company’s AUM by product type for the years 2015 through 2019 is presented below.

	December 31,
(in millions)	2019		2018		2017		2016		2015		5-Year CAGR(1)
Equity	$	3,820,329	$	3,035,825	$	3,371,641	$	2,657,176	$	2,423,772		9	%
Fixed income		2,315,392		1,884,417		1,855,465		1,572,365		1,422,368		11	%
Multi-asset		568,121		461,884		480,278		395,007		376,336		8	%
Alternatives		178,072		143,358		129,347		116,938		112,839		10	%
Long-term		6,881,914		5,525,484		5,836,731		4,741,486		4,335,315		10	%
Cash management		545,949		448,565		449,949		403,584		299,884		13	%
Advisory		1,770		1,769		1,515		2,782		10,213		(39	)%
Total	$	7,429,633	$	5,975,818	$	6,288,195	$	5,147,852	$	4,645,412		10	%

(1) Percentage represents CAGR over a five-year period (2014-2019).

2

Component changes in AUM by product type for the five years ended December 31, 2019 are presented below.

(in millions)	December 31, 2014		Net inflows (outflows)			Adjustment/ acquisitions and dispositions(1)		Market change		FX impact			December 31, 2019		5-Year CAGR(2)
Equity	$	2,451,111	$	277,866		$	2,590	$	1,134,325	$	(45,563	)	$	3,820,329		9	%
Fixed income		1,393,653		718,376			18,539		232,306		(47,482	)		2,315,392		11	%
Multi-asset		377,837		77,525			1,048		123,068		(11,357	)		568,121		8	%
Alternatives		111,240		48,035			10,121		11,255		(2,579	)		178,072		10	%
Long-term		4,333,841		1,121,802			32,298		1,500,954		(106,981	)		6,881,914		10	%
Cash management		296,353		168,051			81,321		6,583		(6,359	)		545,949		13	%
Advisory		21,701		(18,149	)		—		174		(1,956	)		1,770		(39	)%
Total	$	4,651,895	$	1,271,704		$	113,619	$	1,507,711	$	(115,296	)	$	7,429,633		10	%

(1) Amounts 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, AUM acquired in the acquisition of the equity infrastructure franchise of First Reserve (“First Reserve Transaction”) in June 2017, net AUM from the acquisitions of Tennenbaum Capital Partners in August 2018 (“TCP Transaction”) and the asset management business of Citibanamex in September 2018 (“Citibanamex Transaction”), AUM reclassifications and net dispositions related to the transfer of BlackRock’s UK Defined Contribution Administration and Platform business to Aegon N.V. in July 2018 (“Aegon Transaction”), and net AUM dispositions related to the sale of BlackRock’s minority interest in DSP BlackRock Investment Managers Pvt. Ltd. to the DSP Group in August 2018 (“DSP Transaction”). 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 (2014-2019).

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, 2019, total AUM was $7.43 trillion, representing a CAGR of 10% 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 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, the First Reserve Transaction, which added $3.3 billion of AUM in 2017 and the net AUM impact from the TCP Transaction, the Citibanamex Transaction, the Aegon Transaction and the DSP Transaction, which added $27.5 billion of AUM in 2018. Our AUM mix encompasses a broadly diversified product range, as described below.

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

Client Type	Product Type	Investment Style	Client Region
• Retail	• Equity	• Active	• Americas
• iShares ETFs	• Fixed Income	• Index and iShares ETFs	• Europe, the Middle East and Africa (“EMEA”)
• Institutional	• Multi-asset		• Asia-Pacific
	• Alternatives
	• Cash Management

3

Client Type

BlackRock serves a diverse mix of institutional and retail clients across the globe, with a regionally focused business model. BlackRock leverages the benefits of scale across global investment, risk and technology platforms while at the same time using local distribution presence to deliver solutions for clients. Furthermore, our structure facilitates strong teamwork globally across both functions and regions in order to enhance our ability to leverage best practices to serve our clients and continue to develop our talent.  

Clients include tax-exempt institutions, such as defined benefit and defined contribution pension plans, charities, foundations and endowments; official institutions, such as central banks, sovereign wealth funds, supranationals and other government entities; taxable institutions, including insurance companies, financial institutions, corporations and third-party fund sponsors, and retail investors.

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

AUM by investment style and client type at December 31, 2019 is presented below.

(in millions)	Retail		iShares ETFs		Institutional		Total
Active	$	608,552	$	—	$	1,338,670	$	1,947,222
Non-ETF Index		94,745	—			2,599,882		2,694,627
iShares ETFs		—		2,240,065		—		2,240,065
Long-term		703,297		2,240,065		3,938,552		6,881,914
Cash management		10,842	—			535,107		545,949
Advisory		—	—			1,770		1,770
Total	$	714,139	$	2,240,065	$	4,475,429	$	7,429,633

Retail

BlackRock serves retail investors globally through a wide array of vehicles across the investment spectrum, including separate accounts, open-end and closed-end funds, unit trusts and private investment funds. Retail investors are served principally through intermediaries, including broker-dealers, banks, trust companies, insurance companies and independent financial advisors. Technology solutions, digital distribution tools and a shift toward portfolio construction are increasing the number of financial advisors and end-retail clients using BlackRock products. Retail represented 10% of long-term AUM at December 31, 2019 and 31% of long-term base fees for 2019.

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 $565.1 billion, or 80%, of retail long-term AUM at year-end, with the remainder invested in private investment funds and separately managed accounts. 87% of retail long-term AUM is invested in active products.

Component changes in retail long-term AUM for 2019 are presented below.

(in millions)	December 31, 2018		Net inflows (outflows)			Market change		FX impact		December 31, 2019
Equity	$	205,714	$	(652	)	$	45,820	$	1,531	$	252,413
Fixed income		271,588		21,222			11,882		573		305,265
Multi-asset		113,417		(9,291	)		16,138		175		120,439
Alternatives		20,131		4,531			506		12		25,180
Total	$	610,850	$	15,810		$	74,346	$	2,291	$	703,297

The retail client base is diversified geographically, with 70% of long-term AUM managed for investors based in the Americas, 25% in EMEA and 5% in Asia-Pacific at year-end 2019.

• US retail long-term net inflows of $23.4 billion were led by fixed income net inflows of $22.7 billion. Fixed income net inflows were diversified across exposures and products, with strong flows into municipal, total return, high yield and short duration bond offerings. Equity net inflows of $3.9 billion included the successful close of the $1.4 billion BlackRock Science & Technology Trust II, BlackRock’s largest closed-end fund launch in the last seven years. Alternatives net inflows of $2.7 billion were driven by flows into the BlackRock Global Event Driven fund. Multi-asset net outflows of $5.9 billion were primarily due to outflows from world allocation strategies.

• International retail long-term net outflows of $7.6 billion resulted from net outflows from equity, multi-asset and fixed income, partially offset by alternatives net inflows. Alternatives net inflows of $1.8 billion were driven by flows into the BlackRock Global Event Driven fund. Equity net outflows of $4.5 billion were primarily due to outflows from European equities, as political and market uncertainty contributed to a risk-off environment in the region. Multi-asset net outflows of $3.4 billion were primarily due to outflows from world allocation strategies.

4

iShares ETFs

iShares is the leading ETF provider in the world with $2.2 trillion of AUM at December 31, 2019 and was the top asset gatherer globally in 2019¹ with net inflows of $183.5 billion driving an organic growth rate of 11%. iShares fixed income net inflows of $112.4 billion were diversified across exposures and product lines, led by flows into Core, treasuries and mortgage-backed securities funds. iShares equity net inflows of $64.7 billion were driven by flows into Core funds and factor-based ETFs. iShares ETF multi-asset and alternative funds contributed a combined $6.4 billion of net inflows, primarily into commodities funds. iShares ETFs represented 33% of long-term AUM at December 31, 2019 and 41% of long-term base fees for 2019.

Component changes in iShares ETFs AUM for 2019 are presented below.

(in millions)	December 31, 2018		Net inflows		Market change		FX impact			December 31, 2019
Equity	$	1,274,262	$	64,705	$	292,840	$	1,165		$	1,632,972
Fixed income		427,596		112,345		25,878		(29	)		565,790
Multi-asset		4,485		113		601		11			5,210
Alternatives(1)		25,082		6,329		4,664		18			36,093
Total	$	1,731,425	$	183,492	$	323,983	$	1,165		$	2,240,065

(1) Amounts include commodity iShares ETFs.

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

• US iShares ETF² AUM ended 2019 at $1.7 trillion with $117.9 billion of net inflows driven by strong demand for a diverse range of fixed income products, Core funds and factor-based ETFs.

• International iShares ETF² AUM ended 2019 at $549.0 billion with net inflows of $65.6 billion led by fixed income and equity net inflows of $45.8 billion and $17.1 billion, respectively.

1Source: BlackRock; Bloomberg

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

Institutional

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

Component changes in institutional long-term AUM for 2019 are presented below.

(in millions)	December 31, 2018		Net inflows (outflows)			Market change		FX impact		December 31, 2019
Active:
Equity	$	110,976	$	1,852		$	27,547	$	743	$	141,118
Fixed income		538,961		55,006			55,358		2,043		651,368
Multi-asset		336,237		28,785			68,410		801		434,233
Alternatives		93,805		13,813			3,852		481		111,951
Active subtotal		1,079,979		99,456			155,167		4,068		1,338,670
Index:
Equity		1,444,873		(37,552	)		380,101		6,404		1,793,826
Fixed income		646,272		75,006			55,969		15,722		792,969
Multi-asset		7,745		(718	)		1,203		9		8,239
Alternatives		4,340		166			272		70		4,848
Index subtotal		2,103,230		36,902			437,545		22,205		2,599,882
Total	$	3,183,209	$	136,358		$	592,712	$	26,273	$	3,938,552

Institutional active AUM ended 2019 at $1.3 trillion, reflecting $99.5 billion of net inflows, positive across all asset classes. Fixed income net inflows of $55.0 billion included two sizable client wins in the second quarter of 2019. Multi-asset strategies saw continued growth, with net inflows of $28.8 billion reflecting ongoing demand for solutions offerings and the LifePath^® target-date suite.

Alternatives net inflows of $13.8 billion were led by inflows into infrastructure, private equity and real estate. Excluding return of capital and investment of $5.1 billion, alternatives net inflows were $18.9 billion. In addition, 2019 was another strong fundraising year for illiquid alternatives, and at year-end 2019 we had approximately $24 billion of committed capital to deploy for institutional clients.

In total, Institutional active represented 19% of long-term AUM and 19% of long-term base fees.

Institutional index AUM totaled $2.6 trillion at December 31, 2019, reflecting $36.9 billion of net inflows. Fixed income net inflows of $75.0 billion were driven by demand for liability-driven investment solutions. Equity net outflows of $37.6 billion resulted from client de-risking, re-allocating, re-balancing and seeking liquidity in a more uncertain market environment. Institutional index represented 38% of long-term AUM at December 31, 2019 and accounted for 9% of long-term base fees for 2019.

BlackRock’s institutional franchise generated 5% long-term organic base fee growth in 2019 reflecting strength in higher-fee illiquid alternatives, multi-asset solutions and liability-driven investment strategies.

5

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 $2.6 trillion, or 67%, of long-term institutional AUM managed for defined benefit, defined contribution and other pension plans for corporations, governments and unions at December 31, 2019. The market landscape continues to shift from defined benefit to defined contribution, driving strong flows in our defined contribution channel, which had $16.7 billion of long-term net inflows for the year, driven by continued demand for our LifePath target-date suite. Defined contribution represented $1.1 trillion 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 $78.7 billion, or 2%, of long-term institutional AUM was managed for other tax-exempt investors, including charities, foundations and endowments.

• Official Institutions. BlackRock managed $234.4 billion, or 6%, of long-term institutional AUM for official institutions, including central banks, sovereign wealth funds, supranationals, multilateral entities and government ministries and agencies at year-end 2019. 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 $380.0 billion, or 10%, of institutional long-term AUM at year-end 2019. Assets managed for other taxable institutions, including corporations, banks and third-party fund sponsors for which we provide sub-advisory services, totaled $605.0 billion, or 15%, of long-term institutional AUM at year-end.

Client Type and Product Type

Component changes in AUM by product type and investment style for 2019 are presented below.

(in millions)	December 31, 2018		Net inflows (outflows)			Market change			FX impact			December 31, 2019
Retail:
Equity	$	205,714	$	(652	)	$	45,820		$	1,531		$	252,413
Fixed income		271,588		21,222			11,882			573			305,265
Multi-asset		113,417		(9,291	)		16,138			175			120,439
Alternatives		20,131		4,531			506			12			25,180
Retail subtotal		610,850		15,810			74,346			2,291			703,297
iShares ETFs:
Equity		1,274,262		64,705			292,840			1,165			1,632,972
Fixed income		427,596		112,345			25,878			(29	)		565,790
Multi-asset		4,485		113			601			11			5,210
Alternatives		25,082		6,329			4,664			18			36,093
iShares ETFs subtotal		1,731,425		183,492			323,983			1,165			2,240,065
Institutional:
Active:
Equity		110,976		1,852			27,547			743			141,118
Fixed income		538,961		55,006			55,358			2,043			651,368
Multi-asset		336,237		28,785			68,410			801			434,233
Alternatives		93,805		13,813			3,852			481			111,951
Active subtotal		1,079,979		99,456			155,167			4,068			1,338,670
Index:
Equity		1,444,873		(37,552	)		380,101			6,404			1,793,826
Fixed income		646,272		75,006			55,969			15,722			792,969
Multi-asset		7,745		(718	)		1,203			9			8,239
Alternatives		4,340		166			272			70			4,848
Index subtotal		2,103,230		36,902			437,545			22,205			2,599,882
Institutional subtotal		3,183,209		136,358			592,712			26,273			3,938,552
Long-term		5,525,484		335,660			991,041			29,729			6,881,914
Cash management		448,565		93,074			3,054			1,256			545,949
Advisory		1,769		2			(19	)		18			1,770
Total	$	5,975,818	$	428,736		$	994,076		$	31,003		$	7,429,633

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 2019 equity AUM totaled $3.8 trillion, reflecting net inflows of $28.4 billion. Net inflows included $64.7 billion into iShares ETFs, driven by net inflows into Core funds and factor-based ETFs, partially offset by non-ETF index and active net outflows of $33.4 billion and $2.9 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 US equity strategies. Accordingly, fluctuations in international

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

Fixed Income

Fixed income AUM ended 2019 at $2.3 trillion, reflecting net inflows of $263.6 billion. iShares ETFs net inflows of $112.3 billion were led by flows into Core, treasuries and mortgage-backed securities funds. Non-ETF index net inflows of $76.3 billion were driven by demand for liability-driven investment solutions. Active net inflows of $75.0 billion included two sizable institutional client wins in the second quarter of 2019, in addition to strong flows in municipal, total return, high yield and short duration bond offerings.

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 2019 are presented below.

(in millions)	December 31, 2018		Net inflows (outflows)			Market change		FX impact			December 31, 2019
Asset allocation and balanced	$	174,636	$	(13,792	)	$	23,641	$	599		$	185,084
Target date/risk		206,334		23,454			46,180		1,110			277,078
Fiduciary		80,402		9,404			16,496		(713	)		105,589
FutureAdvisor(1)		512		(177	)		35		—			370
Total	$	461,884	$	18,889		$	86,352	$	996		$	568,121

(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 $28.1 billion of net inflows coming from institutional clients. Defined contribution plans of institutional clients remained a significant driver of flows and contributed $18.9 billion to institutional multi-asset net inflows in 2019, primarily into target date and target risk product offerings. Retail net outflows of $9.3 billion were primarily due to outflows from world allocation strategies.

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

• Asset allocation and balanced products represented 33% of multi-asset AUM at year-end. These strategies combine equity, fixed income and alternative components for investors seeking a tailored solution relative to a specific benchmark and within a risk budget. In certain cases, these strategies seek to minimize downside risk through diversification, derivatives strategies and tactical asset allocation decisions. Flagship products in this category include our Global Allocation and Multi-Asset Income fund families.  

• Target date and target risk products grew 11% organically in 2019, with net inflows of $23.5 billion. Institutional investors represented 90% of target date and target risk AUM, with defined contribution plans representing 84% of AUM. Flows were driven by defined contribution investments in our LifePath offerings. LifePath products utilize a proprietary active asset allocation overlay model that seeks to balance risk and return over an investment horizon based on the investor’s expected retirement timing. Underlying investments are primarily index products.

• Fiduciary management services are complex mandates in which pension plan sponsors or endowments and foundations retain BlackRock to assume responsibility for some or all aspects of investment management, often with BlackRock acting as outsourced chief investment officer (“OCIO”). 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. In 2019, BlackRock saw $9.4 billion of net inflows, or 12% organic growth, in fiduciary mandates.

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

In 2019, alternatives generated $24.8 billion of net inflows, or $30.8 billion excluding return of capital/investment of $6.0 billion. The largest contributors to return of capital/investment were private equity solutions, opportunistic and credit strategies, real estate and infrastructure. Net inflows were driven by infrastructure, direct hedge funds, real estate, and private equity and opportunistic strategies. At year-end, we had approximately $24 billion of non-fee paying, unfunded, uninvested commitments, which are expected to be deployed in future years; these commitments are not included in AUM or flows until they are fee-paying.

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. Our highly diversified alternatives franchise is well positioned to meet growing demand from both institutional and retail investors.

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Component changes in alternatives AUM for 2019 are presented in the table below.

(in millions)	December 31, 2018		Net inflows (outflows)			Market change			FX impact			December 31, 2019		Memo: return of capital/ investment(1)			Memo: committed capital(2)
Illiquid alternatives:
Alternative solutions	$	3,498	$	273		$	180		$	29		$	3,980	$	(536	)	$	3,287
Private equity and opportunistic:
Private equity solutions		13,308		1,095			(16	)		(13	)		14,374		(2,009	)		5,268
Opportunistic and credit    strategies		8,671		2,408			51			(21	)		11,109		(1,095	)		5,228
Long Term Private Capital		—		2,430			—			—			2,430		—			—
Private equity and opportunistic subtotal		21,979		5,933			35			(34	)		27,913		(3,104	)		10,496
Real assets:
Real estate		20,262		2,472			1,457			239			24,430		(982	)		1,384
Infrastructure		14,088		5,425			(571	)		84			19,026		(936	)		7,373
Real assets subtotal		34,350		7,897			886			323			43,456		(1,918	)		8,757
Total illiquid alternatives		59,827		14,103			1,101			318			75,349		(5,558	)		22,540
Liquid alternatives:
Direct hedge fund strategies		29,330		4,337			2,426			141			36,234		—			—
Hedge fund solutions		22,388		(380	)		798			8			22,814		(434	)		955
Total Liquid alternatives		51,718		3,957			3,224			149			59,048		(434	)		955
Currency and commodities		31,813		6,779			4,969			114			43,675		—			—
Total	$	143,358	$	24,839		$	9,294		$	581		$	178,072	$	(5,992	)	$	23,495

(1) Return of capital/investment is included in outflows.

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

Illiquid Alternatives

The Company’s illiquid alternatives strategies include the following:

• Alternative Solutions represents highly customized portfolios of alternative investments. In 2019, alternative solutions portfolios had $0.3 billion of net inflows.

• Private Equity and Opportunistic included $14.4 billion in private equity solutions, $11.1 billion in opportunistic and credit offerings, and $2.4 billion in Long Term Private Capital (“LTPC”). LTPC was launched in 2019, and is a perpetual, direct private equity fund designed to create value for the long-term, limit re-investment risk and operate with lower volatility than comparable vehicles. Net inflows of $5.9 billion into private equity and opportunistic strategies included $2.4 billion of net inflows into both LTPC and opportunistic and credit offerings, and $1.1 billion of net inflows into private equity solutions.

• Real Assets, which includes infrastructure and real estate, totaled $43.5 billion, reflecting net inflows of $7.9 billion, led by infrastructure deployments.

Liquid Alternatives

The Company’s liquid alternatives products’ net inflows of $4.0 billion were due to net inflows of $4.3 billion from direct hedge funds, partially offset by $0.3 billion of net outflows from hedge fund solutions. Direct hedge fund AUM includes a variety of single- and multi-strategy offerings.

Currency and Commodities

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

Currency and commodities products had $6.8 billion of net inflows, primarily driven by iShares ETFs. iShares ETFs commodities products represented $36.1 billion of AUM and are not eligible for performance fees.

Cash Management

Cash management AUM totaled $545.9 billion at December 31, 2019, reflecting $93.1 billion of net inflows. Cash management products include taxable and tax-exempt money market funds, short term investment funds and customized separate accounts. Portfolios are denominated in US dollars, Canadian dollars, Australian dollars, Euros, Swiss Francs, New Taiwan Dollars or British pounds. Strong growth in cash management reflects BlackRock’s success in leveraging scale for clients and delivering innovative digital distribution and risk management solutions.

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Client Region

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

AUM by product type and client region at December 31, 2019 is presented below.

(in millions)	Americas		EMEA		Asia-Pacific		Total
Equity	$	2,708,870	$	876,590	$	234,869	$	3,820,329
Fixed income		1,315,748		777,121		222,523		2,315,392
Multi-asset		388,931		153,067		26,123		568,121
Alternatives		92,145		61,041		24,886		178,072
Long-term		4,505,694		1,867,819		508,401		6,881,914
Cash management		403,742		133,846		8,361		545,949
Advisory		1,518		252		—		1,770
Total	$	4,910,954	$	2,001,917	$	516,762	$	7,429,633

Component changes in AUM by client region for 2019 are presented below.

(in millions)	December 31, 2018(1)		Net inflows (outflows)		Market change		FX impact		December 31, 2019
Americas	$	3,931,771	$	280,069	$	691,361	$	7,753	$	4,910,954
EMEA		1,615,140		122,787		243,226		20,764		2,001,917
Asia-Pacific		428,907		25,880		59,489		2,486		516,762
Total	$	5,975,818	$	428,736	$	994,076	$	31,003	$	7,429,633

(1) 2018 AUM reflects the reclassification of $16.0 billion of aggregate AUM in the Iberia region (primarily Spain) from the Americas to EMEA.

Americas

Net inflows of $280.1 billion were positive across all asset classes, with net inflows into fixed income, cash, equity, multi-asset and alternatives of $168.0 billion, $62.4 billion, $21.1 billion, $15.2 and $13.4 billion, respectively. During the year, we served clients through offices in 32 states in the United States as well as Canada, Mexico, Brazil, Chile and Colombia.

EMEA

EMEA net inflows of $122.8 billion reflected net inflows into fixed income, cash, equity, alternatives and multi-asset of $64.7 billion, $29.4 billion, $15.9 billion, $9.3 and $3.5 billion, respectively. 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.

Asia-Pacific

Asia-Pacific net inflows of $25.9 billion were primarily due to fixed income net inflows of $30.9 billion, partially offset by equity net outflows of $8.6 billion. Clients in the Asia-Pacific region are served through offices in Japan, Australia, Hong Kong, Singapore, Taiwan, Korea, China, and India.

Investment Performance

Investment performance across active and index products as of December 31, 2019 was as follows:

	One-year period	Three-year period	Five-year period
Fixed income:
Actively managed AUM above benchmark or peer median
Taxable	87%	86%	89%
Tax-exempt	61%	79%	77%
Index AUM within or above applicable tolerance	95%	98%	91%
Equity:
Actively managed AUM above benchmark or peer median
Fundamental	71%	76%	82%
Systematic	54%	84%	82%
Index AUM within or above applicable tolerance	97%	98%	99%

Performance Notes. Past performance is not indicative of future results. Except as specified, the performance information shown is as of December 31, 2019 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, 2019. The performance data does not include accounts terminated prior to December 31, 2019 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, 2019 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.

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TECHNOLOGY SERVICES

BlackRock offers investment management technology systems, risk management services, wealth management and digital distribution tools on a fee basis. Aladdin is our proprietary technology platform, which serves as the investment and risk management system for both BlackRock and a growing number of institutional investors around the world. BlackRock offers risk reporting capabilities via the Aladdin Risk offering, as well as investment accounting capabilities. Aladdin Provider is a tool used by BlackRock’s custodial partners, connecting them to the platform to add operational efficiency. 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 Aladdin Wealth, which provides wealth management firms and their financial professionals with institutional-quality business management, portfolio construction, modeling and risk analytics capabilities, FutureAdvisor, a digital wealth management platform that provides financial institutions with technology-enabled investment advisory capabilities to manage their clients’ investments, and 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 2019, BlackRock completed the acquisition of eFront, a leading end-to-end alternative investment management software and solutions provider. eFront will continue to be offered on a standalone basis, and, in combination with Aladdin, will provide clients with an ability to manage portfolios and risk across public and private asset classes on a single platform.

Technology services revenue of $974 million was up 24% year-over-year, reflecting the impact of the eFront acquisition and continued growth in Aladdin. Aladdin, which represented the majority of technology services revenue for the year, continues to benefit from trends favoring global investment platform consolidation and multi-asset risk solutions. Aladdin assignments are typically long-term contracts that provide recurring revenue.

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

In addition, BlackRock has made minority investments in the digital distribution companies Scalable Capital and iCapital, Acorns, a micro-investing tool, and Envestnet, a leading independent provider of technology-enabled, web-based investment solutions and services to financial advisors. BlackRock records its share of income related to minority investments accounted for under the equity method in other revenue. BlackRock records gains and losses related to changes in value of other minority investments in nonoperating income (expense).

Securities Lending

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

Outstanding loan balances ended the year at approximately $290 billion, up from $267 billion at year-end 2018. On average, relative to 2018, intrinsic lending spreads were slightly lower, while average cash reinvestment rates remained roughly flat. However, continued asset gathering in lending products resulted in increased balances compared to 2018.

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

Risk & Quantitative Analysis

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

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.

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Employees

At December 31, 2019, BlackRock had a total of approximately 16,200 employees, including approximately 8,600 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, and trust and other fiduciary clients of BlackRock Institutional Trust Company, N.A. (“BTC”). Under these laws and regulations, agencies that regulate investment advisers, investment funds and trust banks and other individuals and entities have broad administrative powers, including the power to limit, restrict or prohibit the regulated entity or person from carrying on business if it fails to comply with such laws and regulations. Possible sanctions for significant compliance failures include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations or bank charters, censures and fines both for individuals and BlackRock.

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

GLOBAL REGULATORY REFORM

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

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 Oversight Council (“FSOC”) has the authority to designate nonbank financial institutions as SIFIs in the United States. In July 2014, the FSOC pivoted from its previous entity-specific approach to designation and indicated that it would focus on a products and activities-based approach to designation in connection with addressing potential risks in the financial system related to asset management. In December 2019, the FSOC re-affirmed this approach when it voted to change its methodology for assessing financial stability to a products and activities-based approach. This reduces the risk of entity-level designation, however the FSOC retains the authority to designate an entity if an activities-based approach does not adequately address potential risks. In the event that BlackRock is designated as a SIFI under Dodd-Frank, it could become subject to enhanced regulatory requirements and direct supervision by the Board of Governors of the Federal Reserve (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 US or non-US tax authorities. In the US, legislation has been proposed in the House and Senate to enact a financial transaction tax (“FTT”) on stocks, bonds and a broad range of financial instruments and derivative transactions. In the European Union (“EU”), certain Member States have also enacted similar FTTs and the European Commission has proposed legislation to harmonize these taxes and provide for the adoption of EU-level legislation applicable to some (but not all) EU Member States. If enacted as proposed, FTTs could have an adverse effect on BlackRock’s financial results and clients’ performance results.

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

Regulation of Swaps and Derivatives

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

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In November 2019, the SEC proposed a rule designed to enhance the regulation of the use of derivatives by registered investment companies, including mutual funds (other than money market funds), ETFs and closed-end funds, as well as business development companies.  The proposed rule would permit such funds to use derivatives, such as forwards, futures, swaps and written options, that create future payment obligations, provided that the funds comply with certain conditions including adopting a derivatives risk management program and complying with a limit on the amount of leverage-related risk that a fund may obtain, based on value-at-risk.  If adopted without change, the proposed rule would increase BlackRock’s disclosure and compliance obligations and may impact certain funds’ usage of derivatives and investment strategy.

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

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

Regulation of Exchange-Traded Funds

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

In addition, in September 2019, the SEC adopted rule 6c-11 under the Investment Company Act of 1940 (the “Investment Company Act”) known as the “ETF Rule”. The ETF Rule will allow ETFs that satisfy certain conditions to operate without first obtaining individual exemptive relief from the SEC. The ETF Rule is designed to create a clear and consistent regulatory framework for most ETFs operating today and will impact all BlackRock ETFs registered under the Investment Company Act (including iShares ETFs). The ETF Rule and related form amendments became effective in December 2019. The form amendments will have a transition period of one year following the effective date. In addition, the ETF Rule rescinds, one year after its effective date, the existing exemptive relief for all eligible ETFs (including iShares ETFs).

Volcker Rule

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 has taken the position that PNC’s ownership interest in BlackRock, which is approximately 22%, in combination with certain other factors, 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 sell certain seed and co-investments that it holds in its covered funds, which may occur at a discount to existing carrying value depending on market conditions.

Standards of Conduct Rulemaking

In June 2019, the SEC adopted a package of rulemakings and interpretations addressing investment adviser and broker-dealer standards of conduct. The package includes new rules requiring registered advisers and registered broker-dealers to provide a relationship summary to retail investors, a new rule establishing a standard of conduct for broker-dealers when making recommendations to retail customers and two new interpretations under the Investment Advisers Act of 1940 (the “Advisers Act”). The rulemakings and interpretations could increase BlackRock’s disclosure obligations, impact distribution arrangements between BlackRock and its distribution partners, create compliance and operational challenges for BlackRock’s distribution partners and limit BlackRock’s ability to provide certain other services to its clients. The Department of Labor (“DoL”) has also indicated it intends to propose a standards of conduct rule in 2020.

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SEC Guidance on Proxy Voting Responsibilities of Investment Advisors  

In August 2019, the SEC published guidance to assist investment advisers with their proxy voting responsibilities under the Advisers Act. The guidance confirmed that investment advisers’ fiduciary duties of care and loyalty to their clients apply to proxy voting and encouraged advisors with voting authority to review their policies and procedures in detail and consider whether more analysis may be required under certain circumstances, including when a proxy advisory firm’s services are retained.  This guidance could impact voting arrangements between BlackRock and its clients, and lead to additional compliance, operational and disclosure obligations for BlackRock.

Financial Crimes Enforcement Network Proposed Rulemaking for Registered Investment Advisers

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

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

BlackRock’s business may also be impacted by SEC regulatory initiatives. The SEC and its staff 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. These efforts relate to, among other things, embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory and public reporting requirements and the evaluation of systemic risks. The SEC has adopted rules that include (i) new monthly and annual reporting requirements for certain US 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 increase, and any additional rules or regulatory initiatives resulting from the SEC's efforts may increase, BlackRock’s public reporting and disclosure requirements, which could be costly and may impede BlackRock’s growth.  

US Executive Order

On February 3, 2017, an executive order (the “Executive Order”) was issued articulating certain core principles for regulating the US financial system and directing the Secretary of the US Treasury to report on the extent to which existing laws, treaties, rules, regulations and policies promote, support or inhibit the federal regulation of the US financial system in a manner consistent with the core principles. Treasury has issued 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.

British Exit from the EU

Following the June 2016 vote to exit the EU, commonly referred to as Brexit, the United Kingdom (“UK”) left the EU on January 31, 2020 and entered an eleven-month transition period during which the UK, and UK-based entities, will retain the rights and obligations of EU membership.

Substantial uncertainty remains surrounding the future relationship between the UK and EU, but the UK government has indicated its preference for negotiating a trade deal with the EU before the end of the transition period rather than continuing Single Market or Customs Union membership. BlackRock is implementing a number of steps to prepare for various outcomes, including there being no agreement in place when the transition period expires. These steps, many of which are time consuming and costly, include effecting organizational, governance and operational changes, applying for and receiving licenses and permissions in the EU, and engaging in client communications, and are expected to add complexity to BlackRock’s European operations. In addition, depending on the terms of the future relationship between the UK and the EU, BlackRock may experience further organizational and operational challenges and incur additional costs in connection with its European operations during the transition period and post-Brexit, which may impede the Company’s growth or impact its financial performance.

Reform of Investment Markets

BlackRock is subject to numerous regulatory reform initiatives that may affect the Company’s provision of investment services globally. In Europe, the Markets in Financial Instruments Directive (“MiFID”) governing the provision of investment services has been revised and is accompanied by an associated Regulation (together with certain secondary regulation, “MiFID II”). The Regulation’s requirements generally apply consistently across the EU. The MiFID II reforms, which came into force in January 2018, are substantive, materially changing market transparency requirements, enhancing protections afforded to investors, and increasing operational complexity for the Company. 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, force more derivatives to be traded on-exchange, introduce new commodity derivatives position limits and significantly enhance reporting obligations associated with individual trades. The broad nature of the MiFID II reforms impact BlackRock’s product development, client servicing and distribution models. In particular, additional disclosures are required to be made in respect of costs and fees BlackRock charges to certain of its clients. MiFID II also impacts the ability of certain of BlackRock’s distribution partners to accept commissions from BlackRock for distributing BlackRock funds. Similar reforms have been introduced in Switzerland and Australia.

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EU Market Access

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

Cessation of LIBOR

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

Revised EU Capital Requirements for Investment Firms

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

UK Asset Management Market Study

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

Macroprudential Policies for Asset Managers

Certain European policymakers continue to raise concerns about liquidity and leverage risks in the asset management industry and wider market-based finance sector. These concerns may lead to macroprudential policy measures being applied to open-ended investment funds broadly, or regulation being introduced that requires changes to the structural features of certain open-ended investment funds. Either eventuality could limit BlackRock’s ability to offer products to certain clients and/or result in clients altering their investment strategies or allocations in a manner that is adverse to BlackRock.

Senior Managers and Certification Regime

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

EU Shareholder Rights Directive

The European Commission has revised the Shareholder Rights Directive to enhance engagement between companies and their long-term shareholders. The revisions, which became effective in June 2019, require investment managers to provide EU institutional investors with enhanced disclosures on shareholder engagement and voting, and information on how the manager’s investment strategy contributes to such investors’ medium to long-term performance.

EU Sustainability Regulation

In 2018, the European Commission introduced a number of regulatory proposals to underpin sustainable investment products; require disclosure of sustainability-related information by market participants, investments products, and issuers; and require the integration of sustainability considerations into the investment and risk management processes of asset managers and other institutional investors.  Rules arising from the reform proposals will come into effect beginning in 2021.

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EXISTING US REGULATION - OVERVIEW

BlackRock and certain of its US subsidiaries are currently subject to extensive regulation, primarily at the federal level, by the SEC, the 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 CFTC and other federal government agencies and regulatory bodies.

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

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

BlackRock’s trading and investment activities for client accounts are regulated under the 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 Exchange Act) 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 MSRB.

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

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

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

US Banking Regulation

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

As described in “Item 1-Business”, as of December 31, 2019 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 has taken the position that this ownership interest, in combination with certain other factors, 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

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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.

Regulation of Securities Financing Transactions

In its 2014 Annual Report, FSOC identified securities lending indemnification by asset managers who act as lending agents as a potential systemic risk that required further review and monitoring. The Federal Reserve is also considering whether to impose specific margin or minimum haircut requirements for securities financing transactions. In addition, in November 2015, the EU introduced a 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 to a trade repository and requiring disclosure of the use of securities financing transactions and total return swaps to investors. The regulation is being implemented in phases and more detailed rules and guidance, including in respect of reporting obligations, is in process. As these rules and guidance become clearer, 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, rules were implemented to reform the regulatory structure governing US money market funds to address perceived systemic risks of money market funds. The rules require institutional prime and institutional municipal money market funds to employ a floating net asset value per share method of pricing, which allows the daily share prices of these funds to fluctuate along with changes in the market-based value of fund assets. Retail money market funds continue operating with a constant net asset value per share. The rules additionally provide for tools for institutional and retail money market funds’ boards designed to address market shocks, including the ability to impose liquidity fees and redemption gates under certain circumstances.  

EXISTING INTERNATIONAL REGULATION — OVERVIEW

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

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

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

European Regulation

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

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

BlackRock’s UK-regulated subsidiaries and other European subsidiaries and branches must comply with the pan-European regulatory regime established by MiFID II, which regulates the provision of investment services and activities throughout the EU. MiFID II 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 Distribution 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 the European Market Infrastructure Regulation (“EMIR”), an EU regulation governing derivatives, central counterparties and trade repositories, which requires (i) the central clearing of standardized over-the-counter (“OTC”) derivatives, (ii) the application of risk-mitigation techniques to non-centrally cleared OTC derivatives (including the exchange of collateral with

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certain counterparties) and (iii) the reporting of all derivative contracts to a European Securities and Markets Authority registered or recognized derivatives trade repository.

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, aligns 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. Compliance with the UCITS directive subjects BlackRock to additional expenses associated with depositary oversight and other organizational requirements.

Most EU Member States and other non-US jurisdictions have adopted statutes and/or regulations concerning data privacy and security and requiring notification of data breaches. For example, in May 2018, the EU Data Protection Directive was replaced by a more extensive General Data Protection Regulation (“GDPR”). GDPR, as well as other statutes and/or regulations concerning data privacy and security, increase compliance obligations, affect BlackRock’s collection, processing and retention of personal data and reporting of data breaches, and provide for increased penalties for non-compliance.

Regulation in the Asia-Pacific Region

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

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

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

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

AVAILABLE INFORMATION

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

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Item 1A. Risk Factors

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

MARKET AND COMPETITION RISKS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The investment management industry is highly competitive and BlackRock competes based on a number of factors including: investment performance, its technology and portfolio construction offerings, the level of fees charged, the quality and breadth of services and products provided, name recognition and reputation, and 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 additional 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.

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

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

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

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

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

At December 31, 2019, BlackRock’s net economic investment exposure of approximately $2.7 billion in its investments (see “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations-Investments”) primarily resulted from co-investments and seed investments in its sponsored investment funds. Movements in the equity, debt or currency markets, or in the price of real assets, commodities or other alternative investments, could lower the value of these investments as well as other minority investments, increase the volatility of BlackRock’s earnings and cause earnings to decline.

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

BlackRock provides borrower default indemnification to certain of its securities lending clients. In the event of a borrower default, BlackRock would use the collateral pledged by the borrower to repurchase securities out on loan in order to replace them in a client’s account. Borrower default indemnification is limited to the shortfall that occurs in the event the collateral available at the time of the borrower’s default is insufficient to repurchase those securities out on loan. BlackRock requires all borrowers to mark to market their pledged collateral daily to levels in excess of the value of the securities out on loan to mitigate the likelihood of the indemnity being triggered. Where the collateral is in the form of cash, the indemnities BlackRock provides do not guarantee, assume or otherwise insure the investment performance or return of any cash collateral vehicle into which that cash collateral is invested. The amount of securities on loan as of December 31, 2019 and subject to this type of indemnification was $210 billion. In the Company’s capacity as lending agent, cash and securities totaling $226 billion was held as collateral for indemnified securities on loan at December 31, 2019. 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 and other events outside of BlackRock’s control could adversely affect the global economy or specific international, regional and domestic markets, which may cause BlackRock’s AUM, revenue and earnings to decline.

Geopolitical risks, including those arising from trade tension, European fragmentation, unrest in the Middle East, Brexit negotiations and terrorist activity, as well as acts of civil or international hostility, are increasing. Similarly, other events outside of BlackRock’s control, including natural disasters, pandemics or health crises (such as the coronavirus), may arise from time to time. Any such events, and responses thereto, may cause significant volatility and declines in the global markets, disruptions to commerce (including to economic activity, travel and supply chains), loss of life and property damage, and may adversely affect the global economy or capital markets, as well as the Company’s products, clients, vendors and employees, which may cause BlackRock’s AUM, revenue and earnings to decline.

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Risks Related to INVESTMENT PERFORMANCE

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

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

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

• client shifts to products that charge lower fees;

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

• reduced, minimal or no performance fees;

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

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

Performance fees may increase volatility of both revenue and earnings.

A portion of BlackRock’s revenue is derived from performance fees on investment advisory assignments. Performance fees represented $450 million, or 3%, of total revenue for the year ended December 31, 2019. Generally, the Company is entitled to a performance fee only if the agreement under which it is managing the assets provides for one and if returns on the related portfolio exceed agreed-upon periodic or cumulative return targets. If these targets are not exceeded, a performance fee for that period will not be earned and, if targets are based on cumulative returns, the Company may not earn performance fees in future periods. The volatility of the Company’s future revenue and earnings may also be affected due to illiquid alternatives becoming an increasing component of the overall composition of the Company’s performance fee generating assets. In particular, as BlackRock takes on more advisory assignments for illiquid investments, performance fees will generally be recognized over substantially longer multi-year periods than those associated with more liquid products.

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

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

TECHNOLOGY AND OPERATIONAL RISKS

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

BlackRock’s infrastructure, including its technological capacity, data centers and office space, is vital to the competitiveness of its business. Moreover, a significant portion of BlackRock’s critical business operations are concentrated in a limited number of geographic areas, including San Francisco, New York, London, Budapest 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, health crisis (such as the coronavirus) or other catastrophic event, or the actions of individuals or groups seeking to disrupt BlackRock’s operations in any location at which BlackRock maintains a major presence, could materially impact operations, result in disruption to the business or impede its growth.

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

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

BlackRock is dependent on the effectiveness of the information and cybersecurity policies, procedures and capabilities it maintains to protect its computer and telecommunications systems and the data that resides on or is transmitted through them. An externally caused information security incident, such as a cyber-attack including a phishing scam, malware, 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, developments in BlackRock’s use of process automation, as well as the 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.

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

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

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

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

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

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

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

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

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

BlackRock’s ability to meet anticipated cash needs depends upon a number of factors, including its creditworthiness and ability to generate operating cash flows. 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.

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

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

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

BlackRock employs a variety of organic and inorganic strategies intended to enhance earnings, increase product offerings, access new clients, leverage advances in technology and expand into new geographies. Inorganic strategies have included hiring smaller-sized investment teams, making minority investments in early- to mid-stage technological and other ventures and acquiring investment management and technology businesses. Inorganic transactions involve a number of financial, accounting, tax, regulatory, geographical and operational challenges and uncertainties, including in some cases the assumption of pre-existing liabilities, which must be managed in order for BlackRock to realize the benefit of such transactions. The success of BlackRock’s inorganic strategy also depends in large part on its ability to integrate the workforce, operations, strategies, technologies and other components of a target business following the completion of an acquisition. BlackRock may be required to commit significant management time, as well as create new, or grow existing, operational and support functions, to facilitate the integration of acquired businesses, manage combined future growth and maintain a cohesive corporate culture. There can be no assurance that BlackRock will be able to successfully integrate acquired businesses, retain associated talent, scale support functions or realize other intended benefits of its inorganic strategy. Moreover, the challenges associated with BlackRock’s inorganic strategy may be heightened when acquired businesses are in new geographic locations, involve new markets, products or business lines or are delivered via technology that differs from that employed by BlackRock. Any failure to identify and mitigate the risks associated with acquisitions through due diligence, indemnification provisions and/or operational expertise, or to manage the integration of acquisitions effectively, could have an adverse effect on BlackRock’s reputation or cause its AUM, revenue and earnings to decline, which may harm the Company’s competitive position in the investment management industry.

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

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

• construction risks, including 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 losses, regulatory sanction or litigation, including claims for compensatory or punitive damages. Similarly, market conditions may change during the course of developments or projects in which BlackRock invests that make such development or project less attractive than at the time it was commenced and potentially harm the investment returns of BlackRock’s clients. The occurrence of any such events may expose BlackRock to reputational harm, divert management’s attention away from BlackRock’s other business activities or cause its AUM, revenue and earnings to decline.

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

As a result of BlackRock’s extensive international operations, the Company faces associated operational, regulatory, reputational, political and foreign exchange rate risks, many of which are outside of the Company’s control. Operating outside the United States (“US”) may also expose BlackRock to increased compliance risks, as well as higher compliance costs to comply with US and non-US anti-corruption, anti-money laundering and sanctions laws and regulations. The failure of the Company’s systems of internal control to mitigate such risks, or of its operating infrastructure to support its global activities, could result in operational failures and regulatory fines and/or sanctions, which may cause the Company’s AUM, revenue and earnings to decline.

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RISKS RELATED TO HUMAN CAPITAL

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

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

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

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

Risks Related to KEY THIRD-PARTY Relationships

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

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

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

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

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

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

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

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

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 US 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.

Legal and Regulatory Risks

BlackRock is subject to extensive regulation around the world.

BlackRock’s business is subject to extensive regulation around the world. These regulations subject BlackRock’s business activities to an array of increasingly detailed operational requirements, compliance with which is costly and complex. In addition, many of BlackRock’s legal entities may be subject to laws and regulations aimed at preventing corruption, money laundering, inappropriate employment practices, illegal payments and engaging in business activities with certain individuals, countries or groups, including but not limited to the US Foreign Corrupt Practices Act, the USA PATRIOT Act, the Bank Secrecy Act, the UK Bribery Act, sanctions imposed by the US Treasury’s Office of Foreign Assets Control, the United Nations and the European Union (“EU”) and its member states, as well as those imposed by other countries in which BlackRock operates. BlackRock is also subject to certain risk retention rules and regulation, as well as regulatory capital requirements, which require the Company to maintain capital to support certain of its businesses. Furthermore, many jurisdictions in which BlackRock operates have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including the General Data Protection Regulation, which expands data protection rules for individuals within the EU and for personal data exported outside the EU. Any determination of a failure to comply with any such laws or regulations could result in fines and/or sanctions against the Company, as well as reputational harm. Moreover, to the extent that these laws and regulations become more stringent, or if BlackRock is required to hold increased levels of capital to support its businesses, the Company’s financial performance or plans for growth may be adversely impacted.

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

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

In recent years a number of regulatory reforms have been proposed or fully or partially implemented in the United States, and the level of regulatory scrutiny to which BlackRock is subject has increased. Further changes to financial services regulation may arise, including in connection with the executive order issued in February 2017 (the “Executive Order”) directing the US Department of the Treasury (“Treasury”) to identify laws, treaties, regulations and other policies that promote or inhibit certain core principles for financial regulation, 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:

• Securities and Exchange Commission (“SEC”) Rulemakings for US Registered Funds and Investment Advisers: 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. These efforts relate to, among other things, embedded leverage through the use of derivatives and other trading practices, cybersecurity, liquidity, enhanced regulatory and public reporting requirements and the evaluation of systemic risks. The SEC has adopted rules that include (i) new monthly and annual reporting requirements for certain US 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 increase, and any additional rules or regulatory initiatives resulting from the SEC's efforts may increase, BlackRock’s public reporting and disclosure requirements, which could be costly and may impede BlackRock’s growth.

• SEC ETF Rule: In September 2019, the SEC adopted rule 6c-11 under the Investment Company Act of 1940 (the “Investment Company Act”) known as the “ETF Rule”. The ETF Rule will allow ETFs that satisfy certain conditions to operate without first obtaining individual exemptive relief from the SEC. The ETF Rule is designed to create a clear and consistent regulatory framework for most ETFs operating today and will impact all BlackRock ETFs registered under the Investment Company Act (including iShares ETFs). The ETF Rule and related form amendments became effective in December 2019. The form amendments will have a transition period of one year following the effective date. In addition, the ETF Rule rescinds, one year after its effective date, the existing exemptive relief for all eligible ETFs (including iShares ETFs).

• Standards of Conduct Rulemaking: In June 2019, the SEC adopted a package of rulemakings and interpretations addressing investment adviser and broker-dealer standards of conduct. The package includes new rules requiring registered advisers and registered broker-dealers to provide a relationship summary to retail investors, a new rule establishing a standard of conduct for broker-dealers when making recommendations to retail customers, and two new interpretations under the Investment Advisers Act of 1940 (the “Advisers Act”). The rulemakings and interpretations could increase BlackRock’s disclosure obligations, impact distribution arrangements between BlackRock and its distribution partners, create compliance and operational challenges for BlackRock’s distribution partners and limit BlackRock’s ability to provide certain other services to its clients. The Department of Labor (“DoL”) has also indicated it intends to propose a standards of conduct rule in 2020.

• SEC Derivatives Rule for US Registered Funds:  In November 2019, the SEC proposed a rule designed to enhance the regulation of the use of derivatives by registered investment companies, including mutual funds (other than money market funds), ETFs and closed-end funds, as well as business development companies.  The proposed rule would permit such funds to use derivatives, such as forwards, futures, swaps and written options, that create future payment obligations, provided that the funds comply with certain conditions including adopting a derivatives risk management program and complying with a limit on the amount of leverage-related risk that a fund may obtain, based on value-at-risk.  If adopted without change, the proposed rule would increase BlackRock’s disclosure and compliance obligations and may impact certain funds’ usage of derivatives and investment strategy.

• SEC Guidance on Proxy Voting Responsibilities of Investment Advisors:  In August 2019, the SEC published guidance to assist investment advisers with their proxy voting responsibilities under the Advisers Act. The guidance confirmed that investment advisers’ fiduciary duties of care and loyalty to their clients apply to proxy voting and encouraged advisors with voting authority to review their policies and procedures in detail and consider whether more analysis may be required under certain circumstances, including when a proxy advisory firm’s services are retained.  This guidance could impact voting arrangements between BlackRock and its clients, and lead to additional compliance, operational and disclosure obligations for BlackRock.

• 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 has taken the position that PNC’s ownership interest in BlackRock, which is approximately 22%, in combination with certain other factors, 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 sell certain seed and co-investments that it holds in its covered funds, which may occur at a discount to existing carrying value depending on market conditions.  

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

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

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

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

• British Exit from the EU: The UK left the EU on January 31, 2020 and entered an eleven-month transition period during which the UK, and UK-based entities, will retain the rights and obligations of EU membership. Substantial uncertainty remains surrounding the future relationship between the UK and EU, but the UK government has indicated its preference for negotiating a trade deal with the EU before the end of the transition period rather than continuing Single Market or Customs Union membership. BlackRock is implementing a number of steps to prepare for various outcomes, including there being no agreement in place when the transition period expires. These steps, many of which are time consuming and costly, include effecting organizational, governance and operational changes, applying for and receiving licenses and permissions in the EU, and engaging in client communications, and are expected to add complexity to BlackRock’s European operations. In addition, depending on the terms of the future relationship between the UK and the EU, BlackRock may experience further organizational and operational challenges and incur additional costs in connection with its European operations during the transition period and post-Brexit, which may impede the Company’s growth or impact its financial performance.

• Reform of investment markets: In Europe, the Markets in Financial Instruments Directive (“MiFID”) governing the provision of investment services has been revised and is accompanied by an associated Regulation (together with certain secondary regulation, “MiFID II”). The Regulation’s requirements generally apply consistently across the EU. The MiFID II reforms, which came into force in January 2018, are substantive, materially changing market transparency requirements, enhancing protections afforded to investors, and increasing operational complexity for the Company. 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, force more derivatives to be traded on-exchange, introduce new commodity derivatives position limits and significantly enhance reporting obligations associated with individual trades. The broad nature of the MiFID II reforms impact BlackRock’s product development, client servicing and distribution models. In particular, additional disclosures are required to be made in respect of costs and fees BlackRock charges to certain of its clients. MiFID II also impacts the ability of certain of BlackRock’s distribution partners to accept commissions from BlackRock for distributing BlackRock funds. Similar reforms have been introduced in Switzerland and Australia.

• Revised EU capital requirements for investment firms: In December 2017, the European Commission published a proposal for a new Directive and Regulation on prudential requirements for MiFID investment firms. The proposal passed the EU legislative process and the final texts of the Regulation and Directive were published in December 2019. The new legislative package, which comes into effect in 2021, will result in changes to the amount of regulatory capital BlackRock is required to hold in the EU and how such capital is calculated, as well as introduce revised disclosure obligations for large investment firms.

• EU market access: In 2019, the European Commission commenced a review of the Alternative Investment Fund Managers Directive to assess, among other things, the effectiveness of regulation on third country fund marketing passports and the continuation of national private placement regimes. To the extent the review results in formal legislation that limits the scope of existing permitted activities and EU market access rights for asset management firms with non-EU operations, BlackRock’s ability to access EU-based clients may be adversely affected.

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

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

• EU Sustainability Regulation: In 2018, the European Commission introduced a number of regulatory proposals to underpin sustainable investment products; require disclosure of sustainability-related information by market participants, investments products, and issuers; and require the integration of sustainability considerations into the investment and risk management processes of asset managers and other institutional investors.  Rules arising from the reform proposals will come into effect beginning in 2021.

• Macroprudential policies for asset managers: Certain European policymakers continue to raise concerns about liquidity and leverage risks in the asset management industry and wider market-based finance sector. These concerns may lead to macroprudential policy measures being applied to open-ended investment funds broadly, or regulation being introduced that requires changes to the

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structural features of certain open-ended investment funds. Either eventuality could limit BlackRock’s ability to offer products to certain clients and/or result in clients altering their investment strategies or allocations in a manner that is adverse to BlackRock.

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 US and non-US governmental and regulatory authorities in connection with certain industry-wide, company-specific or other investigations, proceedings or litigations. These examinations, inquiries and proceedings have in the past and could in the future, if compliance failures or other violations are found, cause the relevant governmental or regulatory authority to institute proceedings and/or impose sanctions for violations. Any such action may also result in litigation by investors in BlackRock’s funds, other BlackRock clients or BlackRock’s shareholders, which could harm the Company’s reputation and may cause its AUM, revenue and earnings to decline, potentially harm the investment returns of the applicable fund, or result in the Company being liable for damages.

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

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 US banking regulations that may limit its business activities.

BlackRock’s trust bank subsidiary, which is a national banking association chartered by the OCC, is subject to OCC regulation and capital requirements. The OCC has broad supervisory and enforcement authority over BlackRock’s trust bank. Being subject to banking regulation may put BlackRock at a competitive disadvantage because certain of its competitors are not subject to these limitations. In addition, as described in “Item 1-Business-Regulation”, as of December 31, 2019, 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 has taken the position that this ownership interest, in combination with certain other factors, 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 an adverse effect on BlackRock’s reputation and may cause its AUM, revenue and earnings to decline.

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

As a leader in the index investing and asset management industry, BlackRock has been the subject of commentary citing concerns about the growth of index investing, as well as perceived competition issues associated with asset managers managing stakes in multiple companies within certain industries, known as “common ownership”. The commentators argue that index funds have the potential to distort investment flows, create stock price bubbles, or conversely, exacerbate a decline in market prices. Additional commentary focuses on competition issues associated with common ownership and purports to link aggregated equity positions in certain concentrated industries managed by asset managers with higher consumer prices and executive compensation, among other things. In the US, the FTC over the course of late 2018 held hearings on Competition and Consumer Protection in the 21^st Century, one of which included a discussion of common ownership. The hearings may be the subject of a report in 2020. In the EU, the European Parliament Committee on Economic and Monetary Affairs is expected to publish a report on common ownership, and the European Commission may do so in 2020. There is substantial literature highlighting the

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benefits of index investing, as well as casting doubt on the assumptions, data, methodology and conclusions associated with common ownership arguments. Some commentators have proposed remedies, including limits on stakes managed by asset managers that, if enacted into policy measures, could have a negative impact on the capital markets, increase transaction costs and limit the availability of products for investors. This may, in turn, adversely affect BlackRock.

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

BlackRock’s businesses may be directly or indirectly affected by tax legislation and regulation, or the modification of existing tax laws, by US or non-US tax authorities.

In the US, legislation has been proposed in the House and Senate to enact a financial transaction tax (“FTT”) on stocks, bonds and a broad range of financial instruments and derivative transactions. In the EU, certain Member States have also enacted similar FTTs and the 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 enacted as proposed, FTTs could have an adverse effect on BlackRock’s financial results and clients’ performance results.

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

RISKS RELATED TO BLACKROCK’S SIGNIFICANT SHAREHOLDER

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, 2019, 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;

• 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.

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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.

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Item 2. Properties

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

Item 3. Legal Proceedings

From time to time, BlackRock receives subpoenas or other requests for information from various US federal and state governmental and regulatory authorities and international governmental and regulatory authorities in connection with industry-wide or other investigations or proceedings. It is BlackRock’s policy to cooperate fully with such matters. The Company, certain of its subsidiaries and employees 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 US 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. In the lawsuit, which purports to be brought derivatively on behalf of the Funds, the plaintiffs allege that the defendants violated Section 36(b) of the Investment Company Act by receiving allegedly excessive investment advisory fees from the Funds. On June 13, 2018, the court granted in part and denied in part the defendants’ motion for summary judgment. On July 25, 2018, the plaintiffs served a pleading that supplemented the time period of their alleged damages to run through the date of trial. The lawsuit seeks, among other things, to recover on behalf of the Funds all allegedly excessive advisory fees received by the defendants beginning twelve months preceding the start of the lawsuit with respect to each Fund and ending on the date of judgment, along with purported lost investment returns on those amounts, plus interest. The trial on the remaining issues was completed on August 29, 2018. On February 8, 2019, the court issued an order dismissing the claims in their entirety. The plaintiffs filed a notice of appeal on March 8, 2019, which remains pending. The defendants believe the claims in this lawsuit are without merit.

On June 16, 2016, iShares Trust, BlackRock, Inc. and certain of its advisory subsidiaries, 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 by failing to adequately disclose in prospectuses issued by the ETFs the risks to the ETFs’ shareholders in the event of a "flash crash." The plaintiffs seek unspecified monetary and rescission damages. The plaintiffs’ complaint was dismissed in December 2016 and on January 6, 2017, the plaintiffs filed an amended complaint. On April 27, 2017, the court partially granted the defendants’ motion for judgment on the pleadings, dismissing certain of the plaintiffs’ claims. On September 18, 2017, the court issued a decision dismissing the remainder of the lawsuit after a one-day bench trial. On December 1, 2017, the plaintiffs appealed the dismissal of their lawsuit and, on January 23, 2020, the California Court of Appeal affirmed the trial court’s dismissal. The defendants believe the claims in this lawsuit are without merit.

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 US District Court for the Northern District of California by a former employee on behalf of all participants and beneficiaries in the BlackRock employee 401(k) Plan (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 unaffiliated peer funds, focused disproportionately on active versus passive strategies, and were unduly concentrated in investment options managed by BlackRock. On October 18, 2017, the plaintiffs filed an Amended Complaint, which, among other things, added as defendants certain current and former members of the BlackRock Retirement and Investment Committees. The Amended Complaint also included 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 securities lending agent on terms that the plaintiffs claim were excessive. The Amended Complaint also alleged that BlackRock took undue risks in its management of securities lending cash reinvestment vehicles during the financial crisis. On August 23, 2018, the court granted permission to the plaintiffs to file a Second Amended Complaint (“SAC”) which added as defendants the BlackRock, Inc. Management Development and Compensation Committee, the Plan’s independent investment consultant and the Plan’s Administrative Committee and its members. On October 22, 2018, BlackRock filed a motion to dismiss the SAC, and on June 3, 2019, the plaintiffs filed a motion seeking to certify both the Plan and the CTF classes. On September 3, 2019, the court granted BlackRock’s motion to dismiss part of the plaintiffs’ claim seeking to recover alleged losses in the securities lending vehicles but denied the motion to dismiss in all other respects. On February 11, 2020, the court denied the plaintiffs’ motion to certify the CTF class and granted their motion to certify the Plan class. On February 25, 2020, the plaintiffs requested permission from the appeals court to immediately appeal the class certification ruling. The defendants believe the claims in this lawsuit are without merit.

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.

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Part II

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

BlackRock’s common stock is listed on the NYSE and is traded under the symbol “BLK”. At the close of business on January 31, 2020, there were 219 common stockholders of record. Common stockholders include institutional or omnibus accounts that hold common stock for many underlying investors.

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

	Cash Dividend
	Declared
2019
First Quarter	$	3.30
Second Quarter	$	3.30
Third Quarter	$	3.30
Fourth Quarter	$	3.30
2018
First Quarter	$	2.88
Second Quarter	$	2.88
Third Quarter	$	3.13
Fourth Quarter	$	3.13

BlackRock’s closing common stock price as of February 27, 2020 was $475.82.

Dividends

On January 29, 2020, the Board of Directors approved BlackRock’s quarterly dividend of $3.63 per share to be paid on March 23, 2020 to stockholders of record at the close of business on March 5, 2020.

PNC receives dividends on shares of nonvoting participating preferred stock, which are equivalent to the dividends received by common stockholders.

Issuer Purchases of Equity Securities

During the three months ended December 31, 2019, the Company made the following purchases of its common stock, which is registered pursuant to Section 12(b) of the Exchange Act.

	Total Number of Shares Purchased(1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
October 1, 2019 through October 31, 2019		7,813	$	446.13		—		5,836,665
November 1, 2019 through November 30, 2019		3,681	$	466.94		—		5,836,665
December 1, 2019 through December 31, 2019		4,402	$	496.90		—		5,836,665
Total		15,896	$	465.01		—

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

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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. Results for 2017 and 2016 were recast to reflect the adoption of the new revenue recognition standard. Results for 2015 reflect accounting guidance prior to the adoption of the new revenue recognition standard.

(in millions, except per share data)	2019		2018			2017		2016			2015
Income statement data:
Revenue
Related parties(1)	$	8,522	$	8,412		$	7,903	$	7,010		$	7,084
Other third parties		6,017		5,786			5,697		5,251			4,317
Total revenue		14,539		14,198			13,600		12,261			11,401
Expense
Restructuring charge		—		60			—		76			—
Other operating expenses		8,988		8,681			8,346		7,620			6,737
Total expense		8,988		8,741			8,346		7,696			6,737
Operating income		5,551		5,457			5,254		4,565			4,664
Total nonoperating income (expense)		236		(79	)		5		(110	)		(62	)
Income before income taxes		5,787		5,378			5,259		4,455			4,602
Income tax expense(2)		1,261		1,076			270		1,289			1,250
Net income		4,526		4,302			4,989		3,166			3,352
Less: Net income (loss) attributable to noncontrolling interests		50		(3	)		37		(2	)		7
Net income attributable to BlackRock, Inc.	$	4,476	$	4,305		$	4,952	$	3,168		$	3,345
Per share data:(3)
Basic earnings	$	28.69	$	26.86		$	30.54	$	19.27		$	20.10
Diluted earnings	$	28.43	$	26.58		$	30.12	$	19.02		$	19.79
Book value(4)	$	216.15	$	204.23		$	197.45	$	178.32		$	172.12
Cash dividends declared and paid per share	$	13.20	$	12.02		$	10.00	$	9.16		$	8.72

(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, fees for management services to equity method investments are considered related parties due to the Company’s influence over the financial and operating policies of the investee. See Note 20, Related Party Transactions, to the consolidated financial statements for more information.

(2) Income tax expense for 2017 reflected $1.2 billion of net tax benefit related to the 2017 Tax Cuts and Jobs Act.

(3) Participating preferred stock is considered to be a common stock equivalent for purposes of earnings per share calculations.

(4) Book value amounts reflect total BlackRock stockholders’ equity divided by total common and preferred shares outstanding at December 31 of the respective year-end.

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	December 31,
(in millions)	2019		2018		2017		2016		2015
Statement of financial condition data:
Cash and cash equivalents(1)	$	4,829	$	6,488	$	7,038	$	6,175	$	6,231
Goodwill and intangible assets, net		32,931		31,365		30,609		30,481		30,495
Total assets(2)		168,622		159,573		220,241		220,198		225,261
Less:
Separate account assets(3)		102,844		90,285		149,937		149,089		150,851
Collateral held under securities lending agreements(3)		15,466		20,655		24,190		27,792		31,336
Consolidated sponsored investment products(4)		1,692		2,209		580		375		678
Adjusted total assets	$	48,620	$	46,424	$	45,534	$	42,942	$	42,396
Borrowings		4,955		4,979		5,014		4,915		4,930
Total BlackRock, Inc. stockholders’ equity	$	33,547	$	32,374	$	31,798	$	29,088	$	28,503
Assets under management:
Equity:
Active	$	316,145	$	258,205	$	311,209	$	275,033	$	281,319
iShares ETFs		1,632,972		1,274,262		1,329,610		951,252		823,156
Non-ETF index		1,871,212		1,503,358		1,730,822		1,430,891		1,319,297
Equity subtotal		3,820,329		3,035,825		3,371,641		2,657,176		2,423,772
Fixed income:
Active		939,275		795,985		815,135		749,996		719,653
iShares ETFs		565,790		427,596		395,252		314,707		254,190
Non-ETF index		810,327		660,836		645,078		507,662		448,525
Fixed income subtotal		2,315,392		1,884,417		1,855,465		1,572,365		1,422,368
Multi-asset		568,121		461,884		480,278		395,007		376,336
Alternatives:
Illiquid alternatives		75,349		59,827		47,270		41,340		40,917
Liquid alternatives		59,048		51,718		51,263		47,290		51,168
Currency and commodities(5)		43,675		31,813		30,814		28,308		20,754
Alternatives subtotal		178,072		143,358		129,347		116,938		112,839
Long-term		6,881,914		5,525,484		5,836,731		4,741,486		4,335,315
Cash management		545,949		448,565		449,949		403,584		299,884
Advisory(6)		1,770		1,769		1,515		2,782		10,213
Total	$	7,429,633	$	5,975,818	$	6,288,195	$	5,147,852	$	4,645,412

(1) Amounts include cash and cash equivalents held by consolidated variable interest entities of $131 million, $186 million, $144 million, $84 million and $148 million at December 31, 2019, 2018, 2017, 2016 and 2015, respectively.

(2) 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.

(3) Equal and offsetting amounts, related to separate account assets and collateral held under securities lending agreements, are recorded in liabilities.

(4) Amounts include assets held by consolidated sponsored investment products.

(5) Amounts include commodity iShares ETFs.

(6) Advisory AUM represents long-term portfolio liquidation assignments.

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

Forward-looking Statements

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

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

BlackRock has previously disclosed risk factors in its Securities and Exchange Commission (“SEC”) reports. These risk factors and those identified elsewhere in this report, among others, could cause actual results to differ materially from forward-looking statements or historical performance and include: (1) 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) BlackRock’s ability to develop new products and services that address client preferences; (5) the impact of increased competition; (6) the impact of future acquisitions or divestitures; (7) BlackRock’s ability to integrate acquired businesses successfully; (8) the unfavorable resolution of legal proceedings; (9) the extent and timing of any share repurchases; (10) the impact, extent and timing of technological changes and the adequacy of intellectual property, information and cyber security protection; (11) attempts to circumvent BlackRock’s operational control environment or the potential for human error in connection with BlackRock’s operational systems; (12) 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”); (13) changes in law and policy and uncertainty pending any such changes; (14) 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; (15) the ability to attract and retain highly talented professionals; (16) fluctuations in the carrying value of BlackRock’s economic investments; (17) 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; (18) BlackRock’s success in negotiating distribution arrangements and maintaining distribution channels for its products; (19) the failure by a key vendor of BlackRock to fulfill its obligations to the Company; (20) any disruption to the operations of third parties whose functions are integral to BlackRock’s exchange-traded funds (“ETF”) platform; (21) 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 (22) the impact of problems at other financial institutions or the failure or negative performance of products at other financial institutions.

Overview

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) is a leading publicly traded investment management firm with $7.43 trillion of AUM at December 31, 2019. With approximately 16,200 employees in more than 30 countries, BlackRock provides a broad range of investment and technology services to institutional and retail clients in more than 100 countries across the globe. For further information see Note 1, Business Overview, and Note 27, Segment Information, in the notes to the consolidated financial statements contained in Part II, Item 8.

The following discussion includes a comparison of BlackRock’s results for 2019 and 2018. For a discussion of BlackRock’s results for 2017, see “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the SEC on February 28, 2019.

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

United Kingdom Exit from European Union

Following the June 2016 vote to exit the European Union (“EU”), commonly referred to as Brexit, the United Kingdom (“UK”) left the EU on January 31, 2020 and entered an eleven-month transition period during which the UK, and UK-based entities, will retain the rights and obligations of EU membership.

Substantial uncertainty remains surrounding the future relationship between the UK and EU, but the UK government has indicated its preference for negotiating a trade deal with the EU before the end of the transition period rather than continuing Single Market or Customs Union membership. BlackRock is implementing a number of steps to prepare for various outcomes, including there being no agreement in place when the transition period expires. These steps, many of which are time consuming and costly, include effecting organizational, governance and operational changes, applying for and receiving licenses and permissions in the EU, and engaging in client communications, and are expected to add complexity to BlackRock’s European operations. In addition, depending on the terms of the future relationship between the UK and the EU, BlackRock may experience further organizational and operational challenges and incur additional costs in connection with its European operations during the transition period and post-Brexit, which may impede the Company’s growth or impact its financial performance.

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Acquisition

On May 10, 2019, the Company acquired 100% of the equity interests of eFront Holding SAS (“eFront Transaction” or “eFront”), a leading alternative investment management software and solutions provider for approximately $1.3 billion, excluding the settlement of eFront’s outstanding debt. The acquisition of eFront expands Aladdin’s illiquid alternative capabilities and enables BlackRock to provide individual alternative or whole-portfolio technology solutions to clients.

Business Outlook

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

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

BlackRock manages $3.8 trillion of equity assets across markets globally. Beta divergence between equity markets, where certain markets perform differently than others, may lead to an increase in the proportion of BlackRock AUM weighted toward lower fee equity products, resulting in a decline in BlackRock’s effective fee rate. Divergent market factors may also erode the correlation between the growth rates of AUM and base fees.

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

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

As the wealth management landscape shifts globally from individual product selection to a whole-portfolio approach, BlackRock’s retail strategy is focused on creating outcome-oriented client solutions. This includes having a diverse platform of alpha-seeking active, index and alternative products, as well as enhanced distribution and portfolio construction technology offerings. Digital wealth tools are an important component of BlackRock’s retail strategy, as BlackRock scales and customizes model portfolios, extends Aladdin Wealth and digital wealth partnerships globally, and helps advisors build better portfolios through portfolio construction and risk management, powered by Aladdin.

BlackRock continues to invest in technology services offerings, which enhance the ability to manage portfolios and risk, effectively serve clients and operate efficiently. Anticipated industry consolidation and regulatory requirements should continue to drive demand for holistic and flexible technology solutions. In 2019, BlackRock completed the acquisition of eFront, a leading end-to-end alternative investment management software and solutions provider. eFront, in combination with Aladdin, will provide clients with an ability to manage portfolios and risk across public and private asset classes on a single platform.

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

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Executive Summary

(in millions, except shares and per share data)	2019			2018
GAAP basis:
Total revenue	$	14,539		$	14,198
Total expense		8,988			8,741
Operating income	$	5,551		$	5,457
Operating margin		38.2	%		38.4	%
Nonoperating income (expense), less net income (loss) attributable to noncontrolling    interests		186			(76	)
Income tax expense		(1,261	)		(1,076	)
Net income attributable to BlackRock	$	4,476		$	4,305
Diluted earnings per common share	$	28.43		$	26.58
Effective tax rate		22.0	%		20.0	%
As adjusted(1):
Operating income	$	5,551		$	5,531
Operating margin		43.7	%		44.3	%
Nonoperating income (expense), less net income (loss) attributable to noncontrolling    interests	$	186		$	(76	)
Net income attributable to BlackRock	$	4,484		$	4,361
Diluted earnings per common share	$	28.48		$	26.93
Effective tax rate		21.9	%		20.0	%
Other:
Assets under management (end of period)	$	7,429,633		$	5,975,818
Diluted weighted-average common shares outstanding(2)		157,459,546			161,948,732
Common and preferred shares outstanding (end of period)		155,198,968			158,520,147
Book value per share(3)	$	216.15		$	204.23
Cash dividends declared and paid per share	$	13.20		$	12.02

(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.

2019 Compared with 2018

GAAP.  Operating income of $5,551 million increased $94 million from 2018. Operating income growth reflected higher base fees and technology services revenue, partially offset by higher compensation and benefits expense and higher general and administration expense. Operating income for 2019 also included $61 million of product launch costs associated with the close of the $1.4 billion BlackRock Science and Technology Trust II, a closed-end active equity fund. Operating income for 2018 included a restructuring charge of $60 million from an initiative to modify the size and shape of the workforce. Nonoperating income (expense), less net income (loss) attributable to noncontrolling interests (“NCI”), increased $262 million from 2018 driven by higher marks on unhedged seed capital investments and the revaluation of certain minority investments. Nonoperating results for 2018 included a $40 million pre-tax gain related to the sale of the Company’s minority interest in DSP BlackRock Investment Managers Pvt. Ltd. to The DSP Group (“DSP Transaction”).

Income tax expense for 2019 included $28 million of discrete tax benefits, primarily related to stock-based compensation awards. Income tax expense for 2018 included $145 million of discrete tax benefits, primarily related to changes in the Company’s organizational entity structure and stock-based compensation awards. See Income Tax Expense within Discussion of Financial Results for more information.

Diluted earnings per common share increased $1.85, or 7%, from 2018, reflecting higher operating and nonoperating income, and a lower diluted share count, partially offset by a higher effective tax rate in the current year.

As Adjusted.  Operating income of $5,551 million increased $20 million from 2018. In 2018, the pre-tax restructuring charge of $60 million described above has been excluded from as adjusted results. Diluted earnings per common share increased $1.55, or 6%, from 2018, driven primarily by higher nonoperating income and a lower diluted share count, partially offset by a higher effective tax rate.

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.

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Non-GAAP Financial Measures

BlackRock reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”); however, management believes evaluating the Company’s ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and considers them to be helpful, for both management and investors, in evaluating BlackRock’s financial performance over time. Management also uses non-GAAP financial measures as a benchmark to compare its performance with other companies and to enhance the comparability of this information for the reporting periods presented. Non-GAAP measures may pose limitations because they do not include all of BlackRock’s revenue and expense. BlackRock’s management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Non-GAAP measures may not be comparable to other similarly titled measures of other companies.

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

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

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

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

(in millions)	2019			2018
Operating income, GAAP basis	$	5,551		$	5,457
Non-GAAP expense adjustments:
Restructuring charge		—			60
PNC LTIP funding obligation		—			14
Operating income, as adjusted		5,551			5,531
Product launch costs and commissions		61			13
Operating income used for operating margin measurement	$	5,612		$	5,544
Revenue, GAAP basis	$	14,539		$	14,198
Non-GAAP adjustments:
Distribution fees		(1,069	)		(1,155	)
Investment advisory fees		(616	)		(520	)
Revenue used for operating margin measurement	$	12,854		$	12,523
Operating margin, GAAP basis		38.2	%		38.4	%
Operating margin, as adjusted		43.7	%		44.3	%

• Operating income, as adjusted, includes non-GAAP expense adjustments. In 2018, a restructuring charge, primarily comprised of severance and accelerated amortization expense of previously granted deferred compensation awards, has been excluded to provide more meaningful analysis of BlackRock’s ongoing operations and to ensure comparability among periods presented. In 2018, 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.

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

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

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

(in millions, except per share data)	2019		2018
Net income attributable to BlackRock, Inc., GAAP basis	$	4,476	$	4,305
Non-GAAP adjustments:
Restructuring charge, net of tax		—		47
PNC LTIP funding obligation, net of tax		—		12
Other income tax matters		8		(3	)
Net income attributable to BlackRock, Inc., as adjusted	$	4,484	$	4,361
Diluted weighted-average common shares outstanding (3)		157.5		161.9
Diluted earnings per common share, GAAP basis (3)	$	28.43	$	26.58
Diluted earnings per common share, as adjusted (3)	$	28.48	$	26.93

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 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. Amounts for income tax matters represent net noncash (benefits) expense primarily associated with the revaluation of certain deferred tax liabilities related to intangible assets and goodwill as a result of tax rate changes. Amounts have been excluded from the as adjusted results as these items will not have a cash flow impact and to ensure comparability among periods presented.

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

(3) Nonvoting participating preferred stock is considered to be a common stock equivalent for purposes of determining basic and diluted earnings per share calculations.

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Assets Under Management

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

AUM and Net Inflows (Outflows) by Client Type and Product Type
	AUM				Net inflows (outflows)
(in millions)	2019		2018		2019		2018
Retail	$	703,297	$	610,850	$	15,810	$	19,079
iShares ETFs		2,240,065		1,731,425		183,492		167,535
Institutional:
Active		1,338,670		1,079,979		99,456		(9,583	)
Index		2,599,882		2,103,230		36,902		(53,704	)
Institutional subtotal		3,938,552		3,183,209		136,358		(63,287	)
Long-term		6,881,914		5,525,484		335,660		123,327
Cash management		545,949		448,565		93,074		(21	)
Advisory(1)		1,770		1,769		2		323
Total	$	7,429,633	$	5,975,818	$	428,736	$	123,629
AUM and Net Inflows (Outflows) by Investment Style and Product Type
	AUM				Net inflows (outflows)
(in millions)	2019		2018		2019		2018
Active	$	1,947,222	$	1,617,780	$	109,892	$	8
Index and iShares ETFs		4,934,692		3,907,704		225,768		123,319
Long-term		6,881,914		5,525,484		335,660		123,327
Cash management		545,949		448,565		93,074		(21	)
Advisory(1)		1,770		1,769		2		323
Total	$	7,429,633	$	5,975,818	$	428,736	$	123,629
AUM and Net Inflows (Outflows) by Product Type
	AUM				Net inflows (outflows)
(in millions)	2019		2018		2019		2018
Equity	$	3,820,329	$	3,035,825	$	28,353	$	15,167
Fixed income		2,315,392		1,884,417		263,579		79,110
Multi-asset		568,121		461,884		18,889		16,913
Alternatives:
Illiquid alternatives		75,349		59,827		14,103		7,580
Liquid alternatives		59,048		51,718		3,957		2,010
Currency and commodities(2)		43,675		31,813		6,779		2,547
Alternatives subtotal		178,072		143,358		24,839		12,137
Long-term		6,881,914		5,525,484		335,660		123,327
Cash management		545,949		448,565		93,074		(21	)
Advisory(1)		1,770		1,769		2		323
Total	$	7,429,633	$	5,975,818	$	428,736	$	123,629

(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 2019 and 2018.

(in millions)	2019		2018
Beginning AUM	$	5,975,818	$	6,288,195
Net inflows (outflows)
Long-term		335,660		123,327
Cash management		93,074		(21	)
Advisory(1)		2		323
Total net inflows (outflows)		428,736		123,629
Acquisitions and dispositions(2)		—		27,500
Market change		994,076		(384,136	)
FX impact(3)		31,003		(79,370	)
Total change		1,453,815		(312,377	)
Ending AUM	$	7,429,633	$	5,975,818

(1) Advisory AUM represents long-term portfolio liquidation assignments.

(2) Amount for 2018 represents $5.4 billion and $25.6 billion of net AUM from the acquisitions of Tennenbaum Capital Partners in August 2018 (“TCP Transaction”) and the asset management business of Citibanamex in September 2018 (“Citibanamex Transaction”), respectively. In addition, amounts include $18.6 billion and $2.3 billion of AUM reclassifications and net dispositions, respectively, related to the transfer of BlackRock’s UK Defined Contribution Administration and Platform business to Aegon N.V. in July 2018 (“Aegon Transaction”) and $1.2 billion of net AUM dispositions related to the DSP Transaction.

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

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

Component Changes in AUM for 2019

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

(in millions)	December 31, 2018		Net inflows (outflows)			Market change			FX impact(1)			December 31, 2019		Full year average AUM(2)
Retail:
Equity	$	205,714	$	(652	)	$	45,820		$	1,531		$	252,413	$	229,688
Fixed income		271,588		21,222			11,882			573			305,265		289,632
Multi-asset		113,417		(9,291	)		16,138			175			120,439		117,366
Alternatives		20,131		4,531			506			12			25,180		22,384
Retail subtotal		610,850		15,810			74,346			2,291			703,297		659,070
iShares ETFs:
Equity		1,274,262		64,705			292,840			1,165			1,632,972		1,453,395
Fixed income		427,596		112,345			25,878			(29	)		565,790		503,266
Multi-asset		4,485		113			601			11			5,210		4,489
Alternatives		25,082		6,329			4,664			18			36,093		29,767
iShares ETFs subtotal		1,731,425		183,492			323,983			1,165			2,240,065		1,990,917
Institutional:
Active:
Equity		110,976		1,852			27,547			743			141,118		124,722
Fixed income		538,961		55,006			55,358			2,043			651,368		611,383
Multi-asset		336,237		28,785			68,410			801			434,233		385,495
Alternatives		93,805		13,813			3,852			481			111,951		103,369
Active subtotal		1,079,979		99,456			155,167			4,068			1,338,670		1,224,969
Index:
Equity		1,444,873		(37,552	)		380,101			6,404			1,793,826		1,640,715
Fixed income		646,272		75,006			55,969			15,722			792,969		733,371
Multi-asset		7,745		(718	)		1,203			9			8,239		8,095
Alternatives		4,340		166			272			70			4,848		4,580
Index subtotal		2,103,230		36,902			437,545			22,205			2,599,882		2,386,761
Institutional subtotal		3,183,209		136,358			592,712			26,273			3,938,552		3,611,730
Long-term		5,525,484		335,660			991,041			29,729			6,881,914		6,261,717
Cash management		448,565		93,074			3,054			1,256			545,949		486,636
Advisory(3)		1,769		2			(19	)		18			1,770		1,766
Total	$	5,975,818	$	428,736		$	994,076		$	31,003		$	7,429,633	$	6,750,119

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

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

(3) Advisory AUM represents long-term portfolio liquidation assignments.

40

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

(in millions)	December 31, 2018		Net inflows (outflows)			Market change			FX impact(1)			December 31, 2019		Full year average AUM(2)
Active:
Equity	$	258,205	$	(2,918	)	$	59,701		$	1,157		$	316,145	$	286,461
Fixed income		795,985		74,972			66,150			2,168			939,275		885,170
Multi-asset		449,654		19,494			84,549			975			554,672		502,860
Alternatives		113,936		18,344			4,357			493			137,130		125,753
Active subtotal		1,617,780		109,892			214,757			4,793			1,947,222		1,800,244
Index and iShares ETFs:
iShares ETFs:
Equity		1,274,262		64,705			292,840			1,165			1,632,972		1,453,395
Fixed income		427,596		112,345			25,878			(29	)		565,790		503,266
Multi-asset		4,485		113			601			11			5,210		4,489
Alternatives		25,082		6,329			4,664			18			36,093		29,767
iShares ETFs subtotal		1,731,425		183,492			323,983			1,165			2,240,065		1,990,917
Non-ETF Index:
Equity		1,503,358		(33,434	)		393,767			7,521			1,871,212		1,708,664
Fixed income		660,836		76,262			57,059			16,170			810,327		749,216
Multi-asset		7,745		(718	)		1,202			10			8,239		8,096
Alternatives		4,340		166			273			70			4,849		4,580
Non-ETF Index subtotal		2,176,279		42,276			452,301			23,771			2,694,627		2,470,556
Index & iShares ETFs subtotal		3,907,704		225,768			776,284			24,936			4,934,692		4,461,473
Long-term		5,525,484		335,660			991,041			29,729			6,881,914		6,261,717
Cash management		448,565		93,074			3,054			1,256			545,949		486,636
Advisory(3)		1,769		2			(19	)		18			1,770		1,766
Total	$	5,975,818	$	428,736		$	994,076		$	31,003		$	7,429,633	$	6,750,119

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

	December 31,		Net inflows		Market			FX		December 31,		Full year average
(in millions)	2018		(outflows)		change			impact(1)		2019		AUM(2)
Equity	$	3,035,825	$	28,353	$	746,308		$	9,843	$	3,820,329	$	3,448,520
Fixed income		1,884,417		263,579		149,087			18,309		2,315,392		2,137,652
Multi-asset		461,884		18,889		86,352			996		568,121		515,445
Alternatives:
Illiquid alternatives		59,827		14,103		1,101			318		75,349		68,030
Liquid alternatives		51,718		3,957		3,224			149		59,048		55,088
Currency and commodities(4)		31,813		6,779		4,969			114		43,675		36,982
Alternatives subtotal		143,358		24,839		9,294			581		178,072		160,100
Long-term		5,525,484		335,660		991,041			29,729		6,881,914		6,261,717
Cash management		448,565		93,074		3,054			1,256		545,949		486,636
Advisory(3)		1,769		2		(19	)		18		1,770		1,766
Total	$	5,975,818	$	428,736	$	994,076		$	31,003	$	7,429,633	$	6,750,119

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

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

(3) Advisory AUM represents long-term portfolio liquidation assignments.

(4) Amounts include commodity iShares ETFs.

AUM increased $1.5 trillion to $7.43 trillion at December 31, 2019 from $5.98 trillion at December 31, 2018 driven by net market appreciation and positive net flows across all investment styles and product types.

Net market appreciation of $994.1 billion was driven primarily by higher global equity and fixed income markets.

AUM increased $31 billion due to the impact of foreign exchange movements, primarily due to the weakening of the US dollar, largely against the British pound.  

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

41

Component Changes in AUM for 2018

The following table presents component changes in AUM by client type and product type for 2018.

	December 31,		Net inflows			Acquisitions and			Market			FX			December 31,			Full year average
(in millions)	2017		(outflows)			dispositions(1)			change			impact(2)			2018			AUM(3)
Retail:
Equity	$	233,218	$	2,090		$	2,137		$	(28,005	)	$	(3,726	)	$	205,714	��	$	231,556
Fixed income		257,571		11,546			14,070			(8,630	)		(2,969	)		271,588			268,818
Multi-asset		120,855		2,914			2,519			(12,107	)		(764	)		113,417			120,907
Alternatives		16,733		2,529			1,628			(590	)		(169	)		20,131			18,492
Retail subtotal		628,377		19,079			20,354			(49,332	)		(7,628	)		610,850			639,773
iShares ETFs:
Equity		1,329,610		112,817			—			(159,433	)		(8,732	)		1,274,262			1,360,991
Fixed income		395,252		50,930			—			(14,355	)		(4,231	)		427,596			404,236
Multi-asset		3,761		1,050			—			(317	)		(9	)		4,485			3,837
Alternatives		23,616		2,738			—			(1,196	)		(76	)		25,082			24,663
iShares ETFs subtotal		1,752,239		167,535			—			(175,301	)		(13,048	)		1,731,425			1,793,727
Institutional:
Active:
Equity		137,185		(7,895	)		(4,296	)		(11,485	)		(2,533	)		110,976			131,474
Fixed income		570,050		(20,701	)		2,417			(7,301	)		(5,504	)		538,961			554,107
Multi-asset		347,825		11,944			(1,593	)		(14,650	)		(7,289	)		336,237			348,342
Alternatives		84,248		7,069			3,374			444			(1,330	)		93,805			88,715
Active subtotal		1,139,308		(9,583	)		(98	)		(32,992	)		(16,656	)		1,079,979			1,122,638
Index:
Equity		1,671,628		(91,845	)		4,749			(122,252	)		(17,407	)		1,444,873			1,648,418
Fixed income		632,592		37,335			2,051			(4,835	)		(20,871	)		646,272			640,733
Multi-asset		7,837		1,005			(243	)		(880	)		26			7,745			8,031
Alternatives		4,750		(199	)		1			(142	)		(70	)		4,340			4,689
Index subtotal		2,316,807		(53,704	)		6,558			(128,109	)		(38,322	)		2,103,230			2,301,871
Institutional subtotal		3,456,115		(63,287	)		6,460			(161,101	)		(54,978	)		3,183,209			3,424,509
Long-term		5,836,731		123,327			26,814			(385,734	)		(75,654	)		5,525,484			5,858,009
Cash management		449,949		(21	)		686			1,593			(3,642	)		448,565			453,883
Advisory(4)		1,515		323			—			5			(74	)		1,769			1,381
Total	$	6,288,195	$	123,629		$	27,500		$	(384,136	)	$	(79,370	)	$	5,975,818		$	6,313,273

(1) Amount represents net AUM impact from the TCP Transaction, the Citibanamex Transaction, the Aegon Transaction and the DSP Transaction.

(2) Foreign exchange reflects the impact of translating non-US dollar denominated AUM into US 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 2018.

	December 31,		Net inflows			Acquisitions and			Market			FX			December 31,		Full year average
(in millions)	2017		(outflows)			dispositions(1)			change			impact(2)			2018		AUM(3)
Active:
Equity	$	311,209	$	(12,439	)	$	(2,160	)	$	(33,819	)	$	(4,586	)	$	258,205	$	300,671
Fixed income		815,135		(12,009	)		16,487			(15,869	)		(7,759	)		795,985		808,997
Multi-asset		468,679		14,858			926			(26,757	)		(8,052	)		449,654		469,249
Alternatives		100,982		9,598			5,002			(146	)		(1,500	)		113,936		107,206
Active subtotal		1,696,005		8			20,255			(76,591	)		(21,897	)		1,617,780		1,686,123
Index and iShares ETFs:
iShares ETFs:
Equity		1,329,610		112,817			—			(159,433	)		(8,732	)		1,274,262		1,360,991
Fixed income		395,252		50,930			—			(14,355	)		(4,231	)		427,596		404,236
Multi-asset		3,761		1,050			—			(317	)		(9	)		4,485		3,837
Alternatives		23,616		2,738			—			(1,196	)		(76	)		25,082		24,663
iShares ETFs subtotal		1,752,239		167,535			—			(175,301	)		(13,048	)		1,731,425		1,793,727
Non-ETF Index:
Equity		1,730,822		(85,211	)		4,750			(127,923	)		(19,080	)		1,503,358		1,710,777
Fixed income		645,078		40,189			2,051			(4,897	)		(21,585	)		660,836		654,661
Multi-asset		7,838		1,005			(243	)		(880	)		25			7,745		8,031
Alternatives		4,749		(199	)		1			(142	)		(69	)		4,340		4,690
Non-ETF Index subtotal		2,388,487		(44,216	)		6,559			(133,842	)		(40,709	)		2,176,279		2,378,159
Index & iShares ETFs subtotal		4,140,726		123,319			6,559			(309,143	)		(53,757	)		3,907,704		4,171,886
Long-term		5,836,731		123,327			26,814			(385,734	)		(75,654	)		5,525,484		5,858,009
Cash management		449,949		(21	)		686			1,593			(3,642	)		448,565		453,883
Advisory(4)		1,515		323			—			5			(74	)		1,769		1,381
Total	$	6,288,195	$	123,629		$	27,500		$	(384,136	)	$	(79,370	)	$	5,975,818	$	6,313,273

The following table presents component changes in AUM by product type for 2018.

	December 31,		Net inflows			Acquisitions and		Market			FX			December 31,		Full year average
(in millions)	2017		(outflows)			dispositions(1)		change			impact(2)			2018		AUM(3)
Equity	$	3,371,641	$	15,167		$	2,590	$	(321,175	)	$	(32,398	)	$	3,035,825	$	3,372,439
Fixed income		1,855,465		79,110			18,538		(35,121	)		(33,575	)		1,884,417		1,867,894
Multi-asset		480,278		16,913			683		(27,954	)		(8,036	)		461,884		481,117
Alternatives:
Illiquid alternatives		47,270		7,580			4,968		828			(819	)		59,827		52,764
Liquid alternatives		51,263		2,010			27		(857	)		(725	)		51,718		51,888
Currency and commodities(5)		30,814		2,547			8		(1,455	)		(101	)		31,813		31,907
Alternatives subtotal		129,347		12,137			5,003		(1,484	)		(1,645	)		143,358		136,559
Long-term		5,836,731		123,327			26,814		(385,734	)		(75,654	)		5,525,484		5,858,009
Cash management		449,949		(21	)		686		1,593			(3,642	)		448,565		453,883
Advisory(4)		1,515		323			—		5			(74	)		1,769		1,381
Total	$	6,288,195	$	123,629		$	27,500	$	(384,136	)	$	(79,370	)	$	5,975,818	$	6,313,273

(1) Amount represents net AUM impact from the TCP Transaction, the Citibanamex Transaction, the Aegon Transaction and the DSP Transaction.

(2) Foreign exchange reflects the impact of translating non-US dollar denominated AUM into US 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 decreased $312.4 billion to $5.98 trillion at December 31, 2018 from $6.29 trillion at December 31, 2017 driven by net market depreciation and the impact of foreign exchange movements, partially offset by positive long-term net flows, led by iShares ETFs, active multi-asset and illiquid alternatives, and net AUM added from strategic transactions.

Net market depreciation of $384.1 billion was driven by lower global equity markets.

AUM decreased $79.4 billion due to the impact of foreign exchange movements, primarily due to the strengthening of the US dollar, largely against the British pound and Euro.  

43

Discussion of Financial Results

Introduction

The Company derives a substantial portion of its revenue from investment advisory and administration fees, which are recognized as the services are performed over time because the customer is receiving and consuming the benefits as they are provided by the Company. Fees are primarily based on agreed-upon percentages of AUM and recognized for services provided during the period, which are distinct from services provided in other periods. Such fees 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-US dollar denominated AUM into US dollars for reporting purposes.

The Company also earns revenue by lending securities on behalf of clients, primarily 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 the Company 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 the Company’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.

The Company offers investment management technology systems, risk management services, wealth management and digital distribution tools, all on a fee basis. Clients include banks, insurance companies, official institutions, pension funds, asset managers, retail distributors and other investors. Fees earned for technology services are primarily recorded as services are performed over time and are generally determined using the value of positions on the Aladdin platform, or on a fixed-rate basis.  Revenue derived from the sale of software licenses is recognized upon the granting of access rights.

The Company earns distribution and service fees for distributing investment products and providing support services to investments portfolios. The fees are based on AUM and are recognized when the amount of fees is known.

The Company 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 are recognized over time as the related services are completed.  

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, which are included in advisory and other revenue, are recorded on a trade-date basis as transactions occur.

The Company also earns revenue related to certain minority investments accounted for as equity method investments.

Operating expense reflects employee compensation and benefits, distribution and servicing costs, 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 to third parties, primarily associated with distribution and servicing of client investments in certain Company products.  

• Direct fund expense primarily consists of third-party nonadvisory expenses incurred by the Company 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 expenses directly a