BlackRock

Letter to Shareholders (continued)

Our government relations work has been another differentiator. Historically, banks have lobbied extensively to influence laws affecting their leverage ratios, capital standards and business activities. Given the very different business model of a fiduciary, asset managers have had no need for such lobbying activities. As a fiduciary, though, we felt it was our responsibility to represent our clients' interests in the debate about the post-crisis reshaping of the financial system. In 2009, therefore, we launched a government relations effort to educate policymakers on market dynamics and the needs of investors as they considered sweeping financial reform. The team has had many meetings, submitted numerous letters and consultations, and prepared special reports for our clients on a wide range of topics, including Dodd-Frank, Basel III, derivatives clearing, MiFID, money market fund reform, the flash crash and SIFI designation criteria. Our goal is to ensure that unintended consequences and operational practicalities are carefully considered before our clients' ability to execute their investment strategies is impaired.

The extent and pace of regulatory change, lingering effects of the financial crisis, and more recent events all spell continuing uncertainty for markets. Debtor nations in the euro zone are facing tremendous political and social upheaval as they struggle to deal with the extensive fiscal adjustments required in the absence of a currency devaluation option. Even with the considerable help of their stronger neighbors, it is far from certain that debt restructuring can be avoided. Rather, the European Financial Stability Fund and its successor, the European Stability Mechanism, buy some time to cushion the impact at banks that hold substantial sovereign debt positions, all of which had been given preferential risk weightings under both Basel rules and the EU's stress tests.

On the other side of the Channel, David Cameron's coalition government in the U.K. has proposed a program of fiscal austerity that could sacrifice near-term GDP growth in order to achieve a balanced budget by 2015. The U.S. is effectively pursuing a hybrid approach: the federal government has provided fiscal and monetary stimulus to promote jobs and economic growth, while the states adopt austerity measures to balance their budgets (since, like euro zone members, they cannot print money). A number of states have already pushed through bold measures amid protests and lawsuits. This is democracy at work — messy to be sure, but the best system we have for driving the evolution, or revolution, needed to survive and thrive.

That same messy process makes the result of revolts in the Middle East, and attempts at democratization, volatile and uncertain. It is too early to predict the outcome, though the risk of an oil shock cannot be ignored. At the same time, imbalances in the standard of living in China have spurred demands for higher wages. China's government has done a magnificent job of engineering the economy, but the challenges will intensify as the country develops a presence on the global stage commensurate with its economic power. In particular, I would expect continued pressure to let its currency trade more freely, to open its markets to increased participation and competition, and to build its capital markets. These steps will be necessary if the central government is to establish the yuan as a reserve currency over time.

The recent events in Japan inspire both concern and respect. The world's largest creditor nation has already suffered a "lost decade" of economic malaise and is grappling with a rapidly increasing dependency ratio. Now they face the daunting task of rebuilding, which will most certainly impact insurance companies globally, may have negative repercussions for global supply chains, and could put pressure on markets to the extent that the government sells their foreign reserves to finance reconstruction. I would be remiss not to commend our team in Japan, who distinguished themselves and BlackRock throughout the tragedy. I also would like to welcome Mizuho Financial Group as a shareholder and business partner in Japan and Asia.

We believe that investors will be best served by combining efficient market exposures (beta) with opportunities to enhance returns (alpha) and by employing dynamic risk management processes.

I look forward with great enthusiasm. I have never been prouder of our team or more excited by the potential of our platform. Over the past five years, we did two major mergers and endured a financial crisis of epic proportions. We were driven by a vision of what we believed would be needed to best serve clients as a fiduciary in a rapidly changing global landscape. Unlike Warren Buffett, my elephant gun is not loaded — we are not looking to do any significant transactions. We are happily focused on running our business — executing for our clients and our shareholders by refining and continuously improving our business practices, raising the bar on our operations and our people, and fostering global content and connectivity.

We have assembled a range of capabilities unlike any other asset manager anywhere in the world. And we have done so intentionally. We believe that investors will be best served by combining efficient market exposures (beta) with opportunities to enhance returns (alpha) and by employing dynamic risk management processes. We believe that investing, whether in home markets or abroad, is a global activity requiring insight into the world's capital markets, economies and regulations. We believe fervently in the merits of our business model as an independent, globally integrated fiduciary, as well as the importance of information sharing and the power of connectivity and collaboration to make more informed investment decisions, to develop more innovative products, and to provide thoughtful, independent advice to our clients.

Lots of firms claim to be global, but few try to achieve global connectedness, and even fewer do so for the sole purpose of serving their clients. That connectivity is at the core of who we are, and we think makes us the most differentiated financial services firm in the world. To sustain and build upon that position, we must be a fertile home for manufacturing of alpha and beta, and expand our manufacturing footprint. We also need to build our brand globally, as demographics and trends in retirement savings necessitate increased name recognition among retail investors worldwide.

Most importantly, we must invest in our people. We are committed to raising the bar and to ensuring that we have a deep bench for succession in each of our teams. We drew upon the depth of our bench when, for example, Evy Hambro and Robin Batchelor assumed leadership of the Natural Resources team, Rick Rieder was named global CIO of Fundamental Fixed Income, Ken Kroner took charge of Scientific Active Equities, Chip Castille was appointed head of our Defined Contribution platform in the U.S. and Canada, and Charles Prideaux was asked to lead the EMEA Institutional effort in our Global Client Group. At the same time, we have been able to attract world-class talent, such as Nancy Everett, head of U.S. Fiduciary Management Services, Chris Leavy, CIO of U.S. Fundamental Equities, Edwin Conway, head of U.S. and Canada Institutional in our Global Client Group, Tom Garside, head of BlackRock Solutions in EMEA, Lee Kempler, Executive Director of the BlackRock Investment Institute, and Jim Barry, CIO of our renewable power investment team.

During 2010, we completed a secondary offering of 58.7 million shares of common stock, raising gross proceeds of $9.6 billion for Bank of America and The PNC Financial Services Group and reducing their stakes to 7% and 20%, respectively. Both banks remain valued partners of BlackRock and active participants on our Board. We were very gratified by the warm reception we received from investors: the book was 1.8 times oversubscribed, with 48 existing and 164 new institutional investors coming into the deal. The offering increased our public float to over 50%, which led to BlackRock being added to the S&P 500M^* index on April 1, 2011. Going forward, we expect to generate substantial free cash flow, which will give us the flexibility to consider returning more capital to shareholders. In February 2011, we announced a 37.5% increase to our dividend.

Bringing two firms together is a huge undertaking. It requires tremendous planning and tireless contributions from every employee, not to mention patience and a sense of humor. We took people out of their comfort zones with new roles and routines. We collectively embraced a culture of performance and accountability. It wasn't for everybody — some employees chose to leave, but the vast majority chose to stay and many more joined the firm. We entered 2011 energized and focused on doing our jobs: delivering alpha in active products, achieving low tracking error in passive strategies, being good listeners so we can help our clients think about the markets and how to meet their investment objectives, and being good partners to each other.

I feel very fortunate to work with an incredibly talented team, over 9,000 strong in 25 countries around the world. They continue to make me proud and to inspire me. Thank you all. I also have the great fortune to be able to tap into the wisdom of an exceptionally strong, engaged Board of Directors. I rely on their guidance and am enormously grateful for their devotion to our Company. Finally, I would like to thank our clients for believing in BlackRock and entrusting us with their investments. Our goal is to meet your goals. It's that simple. Thank you for giving us the opportunity to do so.

Sincerely,

Laurence D. Fink
Chairman and Chief Executive Officer

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