BlackRock, Inc.

Good morning. My name is Jerome, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlockRock Incorporated Second Quarter 2021 Earnings Daily Conference. Our host for today's call will be Chairman and Chief Executive Officer Lawrence D. Fink, Chief Financial Officer Gary S. Shedling, President Robert F. Capito, and General Counsel Christopher J. Meade. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. And if you would like to withdraw your question, press the pound key. Thank you. Mr. Meade, you may begin your conference.

Thank you. Good morning, everyone. I'm Chris Meade, the General Counsel of BlackRock. Before we begin, I'd like to remind you that during the course of this call, we may make a number of forward-looking statements. We call your attention to the fact that BlackRock's actual results may of course differ from these statements. As you know, BlackRock has filed reports with the SEC which list some of the factors that may cause the results of BlackRock to differ materially from what we say today. BlackRock assumes no duty and does not undertake to update any statements. So with that, I'll turn it over to Gary.

Thank you, Chris, and good morning, everyone. It's my pleasure to present results for the second quarter of 2021. Before I turn it over to Larry to offer his comments, I'll review our financial performance and business results. While our earnings release discloses both GAAP and as adjusted financial results, I will be focusing primarily on our as-adjusted results. Last month at our 2021 Investor Day, we highlighted how the investments we have consistently made to support growth have enabled us to execute on our framework for shareholder value. We have invested and evolved over time to create a globally integrated investment and technology platform that enables clients to construct resilient whole portfolios that meet their objectives, regardless of market environment or risk appetite. And we continue to invest in our industry-leading high-growth franchises, such as ETFs, private markets, and technology, and are accelerating investments to drive growth in our ESG, traditional active, and solutions capabilities. The combination of our comprehensive and integrated investment platform with global and local distribution capabilities once again delivered strong results for the quarter, and we remain very well-positioned to continue delivering differentiated organic growth in the future. BlackRock generated total net inflows of $81 billion in the second quarter, representing 4% annualized organic asset growth. As previously disclosed, second quarter net inflows included the full impact of a $58 billion low-fee institutional index redemption from a large U.S. public pension client. Strong net inflows from ETFs and our entire active franchise once again contributed to this quarter's robust 10% annualized organic-based fee growth. Over the last 12 months, Broadway's platform pairing diverse investment capabilities with best-in-class technology and rigorous risk management has generated over $500 billion of total net inflows, representing 13% organic-based fee growth, well in excess of our 5% long-term target. Second quarter revenue of $4.8 billion increased 32% year over year, and operating income of $1.9 billion rose 37%. Earnings per share of $10.03 was up 28%, also reflecting lower non-operating income and a higher effective tax rate compared to a year ago. Strong year over year comparisons benefited in part from significant improvements in equity market conditions versus a year ago. Non-operating results for the quarter included $145 million of net investment income, primarily driven by mark-to-market gains in our private equity co-investment and unhedged seed capital portfolios. Our as-adjusted tax rate for the second quarter was approximately 24%. We now estimate that 24% is a reasonable projected tax run rate for the remainder of 2021 and primarily reflected an increase in certain state tax rates, though the actual effective tax rate may differ as a consequence of non-recurring or discrete items or potential changes in tax legislation during the year. Second quarter base fee and securities lending revenue of $3.8 billion was up 27% year-over-year, primarily driven by the positive impact of market beta on average AUM and strong organic base fee growth. partially offset by higher discretionary money market fee waivers, lower securities lending revenue, and strategic pricing investments over the last year. Sequentially, base fee and securities lending revenue was up 5%. However, our effective fee rate was down 0.3 basis points. as strong organic base fee growth driven by our higher fee active businesses and the impact of one additional day in the current quarter were more than offset by higher discretionary money market fee waivers and the impact of divergent equity beta in the quarter. During the second quarter, we incurred approximately $165 million of gross discretionary yield support waivers, driven in part by continued strong flows into our U.S. government money market funds. While the Fed's recent technical adjustments to the IOER and RRP have modestly helped, we still expect discretionary fee waivers to persist at or around current levels for the near term. However, future levels of discretionary fee waivers may also be impacted by several additional factors, including the level of AUM in funds with existing waivers, gross yields, and competitive positioning. Performance fees of $340 million were up significantly from a year ago, reflecting strong performance across our entire investment platform, including liquid and illiquid alternatives and long-only strategies. Quarterly technology services revenue increased 14% from a year ago, while annual contract value, or ACV, increased 16% year-over-year and continued to reflect strong growth from the second quarter of 2020, which was impacted by slower sales and extended contracting in the early days of the pandemic. We remain committed to low to mid-teens growth in ACV over the long term. Total expense increased 29% versus the year-ago quarter, driven primarily by higher compensation, direct fund, and G&A expense. Employee compensation and benefit expense was up 34%, primarily reflecting higher incentive compensation, driven by higher operating income and performance fees, and higher deferred compensation, reflecting the impact of additional grants associated with prior year compensation and certain compensation arrangements related to a previous acquisition. Direct fund expense increased 30% year-over-year, primarily reflecting higher average index AUM. G&A expense was up $73 million, or 19% year-over-year, primarily driven by higher technology, portfolio services, and marketing spend. Sequentially, G&A expense was down $124 million, reflecting the impact of approximately $180 million of product launch costs incurred in the first quarter, partially offset by higher technology and marketing spend. And tangible amortization expense increased $10 million year-over-year as a result of our imperial acquisition. Our second quarter has adjusted operating margin of 44.9%, up 120 basis points from a year ago, benefiting in part from significant equity market improvements over the last year. BlackRock has never been better positioned to take advantage of the opportunities before us, and we remain committed to optimizing organic growth in the most efficient way possible. Our capital management strategy remains first to invest in our business, including through prudent use of our balance sheet, and then to return excess cash to shareholders. We see opportunity to make Aladdin the language of all portfolios and are investing to evolve Aladdin for its next leg of growth. As Larry will discuss in more detail, During the quarter, we announced a partnership with Beringa, including the acquisition of their industry-leading climate change scenario model, which will enhance Aladdin Climate's capabilities and set a new standard for climate analytics. In addition, yesterday we announced a minority investment in SpiderRock Advisors, a tech-enabled asset manager focused on providing professionally managed option overlay strategies. This investment adds incremental product capabilities to our recent acquisition of Appirio and extends our market-leading personalized SMA franchise. We also repurchased an additional $300 million worth of shares in the second quarter and stand by previous guidance as it relates to share repurchases for the remainder of the year. As we discussed at Investor Day, our strong and resilient platform has never been better positioned to deliver for clients as we leverage our scale, unique insights, and solutions orientation to meet their long-term investment needs. Quarterly net inflows of $81 billion reflected continued momentum across our entire investment business, especially in our ETF and active platforms. Our ETFs generated net inflows of $75 billion in the second quarter, representing 11% annualized organic asset and base fee growth. We also crossed $3 trillion in assets globally for the first time. Core equity and higher fee precision ETFs continue to generate strong inflows, particularly in international equities. However, most of our growth this quarter came from the strategic category, led by continued strength in our sustainable ETFs and renewed strength in fixed income, as well as steady positive flows into factor and thematic ETFs. Retail net inflows of $21 billion, representing 9% annualized organic asset growth and 10% annualized organic-based fee growth, were positive in both the U.S. and internationally and across all major asset classes. inflows continue to reflect broad-based strength across the entirety of our active platform, and we remain well-positioned to capture demand for both active equities and an investor appetite for yield, where our diversified fixed income range, including unconstrained, high-yield, international, and broad-market strategies, is equipped to meet client demand in any rate environment. BlackRock's institutional active net inflows of $43 billion were led by $35 billion of multi-asset net inflows, largely driven by a significant outsourced CIO mandate from a UK pension client. As Larry will also discuss, BlackRock is uniquely positioned to deliver customized whole portfolio solutions by capitalizing on our global scale, expertise in investment technology and risk management, and focus on sustainability. During the second quarter, we also saw continued demand for active fixed income and illiquid alternatives and life path target date offerings. Institutional index net outflows of $80 billion were impacted by the previously mentioned single client redemption during the quarter. Outflows from index equities were partially offset by inflows into fixed income as clients rebalanced portfolios after significant equity market gains or sought to immunize portfolios through LDI strategies. Despite overall asset net outflows across BlackRock's institutional franchise for the quarter, annualized organic base fee growth was 6%, as net inflows into higher fee active and alternative strategies more than offset the de minimis base fee impact of low fee index equity outflows. Overall, BlackRock generated approximately $63 billion in quarterly active net flows across the platform, notching our ninth consecutive quarter of positive active equity flows. Demand for alternatives also continued, with nearly $7 billion of net inflows into liquid and illiquid alternative strategies during the quarter, driven by single strategy hedge funds, fund of hedge fund solutions, real assets, private credit, and private equity solutions. Fundraising momentum remains strong, and we have approximately $31 billion of committee capital to deploy for institutional clients in a variety of alternative strategies, representing a significant source of future base and performance deals. Finally, BlackRock's cash management platform continued to grow, generating $23 billion of net inflows in the second quarter, driven by both prime and U.S. government money market funds. Despite facing near zero returns in both the U.S. and Europe, client demand for cash strategies remains significant liquidity in the financial system, and by helping clients manage their cash, we are building broader and deeper strategic relationships. Our continued strong performance is a direct result of a thoughtful growth strategy that has been well executed by a talented group of purpose-driven employees who live the one BlackRock culture each day. We are thankful for their tremendous effort and contributions to our success over these last 18 months. We will continue to embrace change and invest responsibly for the future so that we can meet the needs of all of our stakeholders. With that, I'll turn it over to Larry.