Investment Styles

Long­-term3 product offerings include active and passive (index) strategies. Our active strategies seek to earn attractive returns in excess of a market benchmark or performance hurdle (alpha) while maintaining an appropriate risk profile. In contrast, passive strategies seek to closely track the returns of a corresponding index (beta), 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.

Although many clients use both active and passive strategies, the application of these strategies differs greatly. For example, clients may use index products to gain exposure to a market or asset class pending reallocation to an active manager. This has the effect of increasing turnover of index AUM. In addition, institutional index assignments tend to be very large (multi­-billion dollars) and typically reflect low fee rates. This has the potential to exaggerate the significance of net flows in institutional index on BlackRock's revenues and earnings.

Active Strategies

We offer two types of active strategies: those that rely primarily on fundamental research and those that utilize primarily quantitative models to drive portfolio construction. Long­-term active AUM decreased $2.8 billion to $1.188 trillion at year-end 2011 with 23% in equities, 52% in fixed income, 18% in multi-­asset class and 7% in alternatives. Favorable markets contributed $7.4 billion of growth, which was partially offset by $2.7 billion of net outflows, largely reflecting investors' risk­-averse posture in equities and fixed income throughout most of the year. AUM growth was hampered by BGI merger­-related outflows of $7.5 billion, primarily in SAE.

Active Equity

Active equity AUM of $275.2 billion decreased 18%, or $59.4 billion, from year-end 2010. Results reflected $29.6 billion of market valuation losses and net outflows of $22.9 billion before the final merger­-related outflows of $6.9 billion in the first half of 2011. Active equity reflects a broad product set including global and regional portfolios; value, growth and core products; large, mid and small cap strategies; and selected sector funds. We believe an improving U.S. economy, strong corporate balance sheets and sustained growth in the emerging markets bode well for equity markets in 2012, although geopolitical risks, particularly in Europe, continue to weigh heavily on investors' psyches.

BlackRock manages active equity portfolios for a diverse base of institutional and retail clients globally. At December 31, 2011, 46%, or $125.5 billion, of our active equity AUM was managed on behalf of institutional investors in separate accounts, collective investment trusts and mutual funds and 54%, or $149.7 billion, was managed for retail and high net worth investors, largely through open­-end mutual funds and separately managed accounts. Approximately 48% of our active equity AUM was managed for investors based in the Americas, 38% in EMEA and 14% in Asia-Pacific.

Fundamental active equity ended 2011 with $208.5 billion in AUM. Net inflows of $3.7 billion in U.S. equity and sector­-specific strategies were more than offset by outflows of $8.6 billion in global and non­-U.S. regional mandates. Market valuation losses of $25.3 billion further eroded AUM. Our fundamental active equity strategies seek to add value relative to a specified index or on an absolute basis, primarily through a combination of proprietary research and portfolio manager judgment. In total, 44%, 54% and 86% of fundamental active equity AUM outperformed their benchmarks or peer medians for the one-­, three-­ and five-year periods ended December 31, 2011, respectively.

Scientific active equity AUM declined 30% to $66.7 billion, driven by net outflows of $18.0 billion before giving effect to $6.4 billion of BGI merger-­related outflows recorded in the first quarter of 2011. Market valuation losses of $4.3 billion further weighed on results. SAE strategies seek superior investment outcomes through a systematic stock selection process that aims to find and exploit pricing opportunities, while rigorously managing risk and cost. As a result of recent investments in the platform, we continue to generate improving performance with 56%, 53% and 43% of SAE AUM outperforming their benchmarks or peer medians for the one­-, three-­ and five-year periods ended December 31, 2011, respectively.

Active Fixed Income

Active fixed income AUM ended 2011 at $614.8 billion, an increase of 4%, or $22.5 billion, from the end of 2010, reflecting market valuation gains of $40.3 billion, which were partially offset by $17.4 billion of net outflows. Fixed income mandates are often tailored to client­-specified liabilities; accounting, regulatory or rating agency requirements; or other investment policies. Overall, U.S. bonds enjoyed solid absolute returns in 2011, as demonstrated by a 7.8% return in the Barclays Capital U.S. Aggregate Index. While sovereign credit risk remains a concern, particularly in parts of Europe, we expect Federal Reserve policy in the United States to target stable interest rates.

Total active fixed income AUM included 81% in institutional assets and 19% in retail and high net worth assets. The client base reflects our historical roots with 70% of active fixed income AUM managed for investors in the Americas, 21% for EMEA­-domiciled clients and 9% for investors in the Asia­-Pacific region. Net inflows of $3.8 billion from Asia­-Pacific clients were more than offset by outflows of $21.2 billion from investors in the Americas and EMEA.

Fundamental fixed income AUM totaled $571.1 billion, or 93%, of active fixed income AUM at year-end 2011. These products emphasize risk­-controlled sector rotation and security selection driven by sector experts and direct interaction with issuers and market makers. Fundamental strategies increased $17.6 billion, driven by $37.2 billion of market valuation gains. These results were partially offset by $19.2 billion of net outflows, largely reflecting the effect of client changes in overall asset allocation (re­balancing), long-­term performance concerns and interest in indexation. Positive flows of $8.9 billion into domestic specialty mandates such as U.S. credit, high-yield and inflation-protected products and $6.0 billion into U.S. municipal bonds were more than offset by outflows of $13.0 billion from local currency strategies and $10.0 billion of outflows from U.S. core funds. Fundamental taxable fixed income strategies ended the year with 43%, 78% and 43% of AUM above their benchmarks or peer medians for the one­-, three­- and five­-year periods ended December 31, 2011, respectively. Our active tax­-exempt business showed strong results with 61%, 66% and 73% of AUM above their benchmarks or peer medians for the same time periods.

Model­-based fixed-income AUM grew $4.9 billion, or 13%, ending the year at $43.7 billion, reflecting net inflows of $1.8 billion and $3.1 billion of market valuation gains. These strategies employ models to identify relative return opportunities and to apply those results, subject to a pragmatic review of model risk, on a systematic basis across portfolios. Performance in our model­-based fixed-income strategies was strong, with 70%, 86% and 83% of AUM above benchmarks or peer medians for the one-­, three-­ and five­-year periods ended December 31, 2011, respectively.

Multi-Asset Class and Alternatives

Active strategies represented 97% of multi­-asset class AUM and 76% of AUM in alternative investments. Please see the corresponding sections under "Products – Asset Classes" for additional information.

© Copyright 2012 BlackRock, Inc. All rights reserved.

This is an interactive electronic version of the BlackRock 2011 Annual Report to Shareholders. The contents of this version are qualified in their entirety by reference to the printed version. A reproduction of the printed version is available in PDF here.

3 Long-term assets under management exclude cash management and BlackRock Solutions and advisory offerings, please see discussion of these products.


Opinions expressed throughout this annual report are those of BlackRock, Inc. as of March 2012 and are subject to change.

BGI Transaction

On December 1, 2009, BlackRock acquired from Barclays Bank PLC all of the outstanding equity interests of subsidiaries of Barclays conducting the business of Barclays Global Investors ("BGI") (the "BGI Transaction").

Adjusted and As Adjusted Results

Diluted earnings per share, operating income, operating margin, operating cash flow and net income are presented on an "as adjusted" basis. See pages 28-30 of the PDF for Explanation of Use of Non-GAAP Financial Measures.

Other Revenue

On the Financial Highlights page Other Revenue includes BlackRock Solutions and advisory, Cash management base fees, Investment advisory performance fees, Distribution fees and Other revenue.

Operating Margin Peer Average

Source: SNL, as of December 31, 2011; Market-cap weighted peer average includes: BEN, IVZ, TROW, LM, AMG, FII, EV, WDR, JNS, CLMS, CNS, GBL and PZN.

Performance Data

Past performance is not indicative of future results. The performance information shown is based on preliminarily available data. The performance information for actively managed accounts reflects U.S. open-end and closed-end mutual funds and similar EMEA-based products with respect to peer median comparisons, and actively managed institutional and high net worth separate accounts and funds located globally with respect to benchmark comparisons, as determined using objectively based internal parameters, using the most current verified information available as of December 31, 2011.

Accounts terminated prior to December 31, 2011 are not included. In addition, accounts that have not been verified as of January 30, 2012 have not been included. If such terminated and other accounts had been included, the performance information may have differed substantially from that shown. The performance information does not include funds or accounts that are not measured against a benchmark, any benchmark-based alternatives product, private equity products, CDOs, or liquidation accounts managed by BlackRock's FMA group.

Comparisons are based on gross-of-fee performance for U.S. retail, institutional and high net worth separate accounts and EMEA institutional separate accounts and net-of-fee performance for EMEA based retail products. The performance tracking information for institutional index accounts is based on gross-of-fee performance as of December 31, 2011, and includes all institutional accounts and all iShares funds globally using an index strategy. AUM information is based on AUM for each account or fund in the asset class shown without adjustment for overlapping management of the same account or fund as of December 31, 2011. The information reported may differ slightly from that reported previously due to the increased number of accounts that have been verified since the last performance disclosure. BlackRock does not consider these differences to be material.

The source of performance information and peer medians is BlackRock and is based in part on data from Lipper Inc. for U.S. funds and Morningstar, Inc. for non-U.S. funds. Fund performance reflects the reinvestment of dividends and distributions, but does not reflect sales charges. S&P 500® Index is a widely recognized, unmanaged index of common stock prices of industrial, utility, transportation and financial companies in U.S. markets.

Barclays Capital U.S. Aggregate Index is an unmanaged index considered representative of the U.S. investment-grade, fixed rate bond market.

Net New Business and Net Inflows

Unless stated otherwise, 2011 net new business and net inflows figures are before giving effect to a total of $28.3 billion in BGI merger-related outflows. These outflows reflect manager concentration considerations prior to third quarter 2011 and outflows from scientific active equity performance prior to second quarter 2011. BGI merger-related outflows totaled $121.0 billion in 2010 and $2.9 billion in 2009. Total merger-related outflows since the December 2009 BGI transaction represent less than 9% of acquired assets under management.

Market Share of U.S. Long-Term Mutual Fund Flows

Source: SimFund, as of December 31, 2011; Data is for U.S. long-term open-end mutual funds and excludes ETFs and funds of funds.

BlackRock Data Points

Debt ratings, AUM, ETPs offered, number of countries and employee data as of December 31, 2011. All other data reflect full-year 2011 results unless otherwise noted. BLK Total Return Performance vs. Peers - Source: SNL. Reflects full year 2011 results and assumes reinvestment of all dividends. Market-cap weighted peer average includes: BEN, IVZ, TROW, LM, AMG, FII, EV, WDR, JNS, CL MS, CN S, GBL and PZN.