Ann Marie Petach -- CFO Robert Connolly -- General Counsel Laurence Fink -- Chairman and CEO Sue Wagner -- Vice Chairman and COO

Roger Smith -- Fox-Pitt Kelton William Katz -- Buckingham Research Mike Carrier -- Deutsche Bank Roger Freeman -- Barclays Capital Marc Irizarry -- Goldman Sachs Jeffrey Hopson -- Stifel Nicolaus Craig Siegenthaler -- Credit Suisse Chris Varr [ph] -- CLSA

Good morning. My name is Tina and I will be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock, Inc. third quarter 2009 earnings teleconference. Our host for today's call will be Chairman and Chief Executive Officer, Laurence D. Fink, Chief Financial Officer, Ann Marie Petach and General Counsel, Robert P. Connolly. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator instructions). Thank you. Mr. Connolly, you may begin your conference.

Good morning. This is Bob Connolly. I'm General Counsel, BlackRock. Before Larry and Ann Marie and Sue Wagner, our Chief Operating Officer make their remarks, I want to point out that during the course of this conference call we may make a number of forward-looking statements. We call to your attention the fact that BlackRock's actual results may differ from these statements. As you know, BlackRock has filed with the SEC reports which list some of the factors which may cause our results to differ materially from these statements. Finally, BlackRock assumes no duty to and does not undertake to update any forward-looking statements. With that I will turn it over to Ann Marie, our Chief Financial Officer.

Good morning, everyone. As usual, I'll be discussing primarily as adjusted results. Third quarter as adjusted net income was $293 million or $2.10 per share. This includes $1.86 per share of operating earnings and $0.24 per share of non-operating earnings. Net income improved 23% compared to second quarter and 28% compared to a year ago. Note that the third quarter GAAP results included a $45 million deferred tax benefit related to a tax law change. We've excluded this benefit from our as adjusted results because it is tax law related. The as adjusted tax rate was 35%. During the third quarter, we continued to see substantial improvements in equity and fixed income markets, with equity markets up 15% or more since June 30th. These improvements in market tone positively affected long-dated asset flows as investors continued to seek higher returns and reduced tax assets. While equity markets are still about 10% below year ago level, assets under management actually reached a new peak at $1.435 trillion at September 30th. These improvements positively affected the revenue, operating income and non-operating income results. We have maintained cost discipline and continue to benefit from our diversified business model. Our $42 billion pipeline includes $36 billion in long-dated assets. Revenues of $1.140 billion improved by 11% compared to the second quarter. The improvement in revenues reflected $14 billion of positive long-dated asset flows and $78 billion in positive market effects on AUM. The revenue declined by 13% compared to a year ago. This is despite net new business and long-dated assets of $18 billion and new advisory AUM of $116 billion. This is explained by the effect of equity and alternative market declines on average AUM. As to the revenue trend, it's worth pointing out that long-dated assets of $981 billion at September 30th are actually up 6% compared to a year ago and that includes an 11% increase in equity and balanced assets compared to a year ago. BlackRock Solutions and Advisory revenues remained strong at $127 million. This reflects a continued appetite for analytic and aligned services to our traditional business as well as continued advisory assignments. BRS continues to have a strong pipeline of financial market advisory, Aladdin and risk reporting opportunities. As adjusted operating income of $400 million improved 32% compared to the second quarter and decreased 7% compared to the third quarter of 2008. The revenue changes I mentioned earlier were a key driver to the operating income results. The operating margin as adjusted of 40.1% reflects the combination of improved revenues and continued cost discipline. Excluding hedge changes in deferred comp, compensation changes were driven by changes in incentive comp that is compared to both periods and reduced staffing levels as compared to a year ago. We have continued to increase the bonus accrual to reflect improvements in income. Third quarter G&A expense included a $3 million benefit associated with balance sheet foreign currency effects whereas prior periods included more material effects. There was $18 million of expense in the second quarter and a $30 million benefit in the third quarter of 2008. The absence of these effects in the present period explains a material portion of the period over period changes in G&A expense. Excluding these effects, G&A expense relative to prior periods reflects strong cost discipline. Just note that the GAAP G&A expense also included $16 million of expense related to BGI integration. We expect to close the BGI transaction on December 1. We continue to estimate total BGI integration costs in the range of $300 million to $350 million. The key cost drivers will include transaction costs, professional fees, restructuring costs, technology synchronization, re-branding and marketing expense. As we have discussed before, BlackRock co-invests with our clients. The majority of these co-investments and (inaudible) investments are mark-to-market through the income statement in non-operating income. As adjusted non-operating income totaled $52 million in the third quarter. This reflects improving spreads under stress debt, particularly really some mortgage-related products and positive movements in the private equity markets. Our balance sheet exposure remains at levels reduced greatly from one year ago. The total value of the investment portfolio stands at about $850 million or about $750 million excluding investments which represent hedges or those investments which are hedged. Third quarter results and business trends reflect strong net new business, robust pipeline, improved markets and cost discipline. This positive momentum is continuing as we get into the fourth quarter. The momentum and opportunities for the business should continue to expand as we close the transaction with BGI. We're very encouraged with the opportunities as our businesses come together in the very near-term. With that, I will turn it over to Larry.

Thanks, Ann Marie. Good morning, everyone. I would like to just give a perspective and a review of the markets over the last 12 months. As I guess everyday there is a new book on commenting about the credit crisis and everyone has new and revisionist theories about everything let me give you my perspective. So as we review our third quarter results, we need to reflect on the results in the context of the past 12 months and how we have positioned ourselves for the future. As the market began falling in the third quarter, collapsing in the fourth quarter and first quarter of this year, investors worldwide needed to reassess their portfolios and began to mitigate their risk as necessary. The results of these actions we've seen a huge hoarding of cash which pushed down equity markets, credit spreads and a collapse of confidence as people ran to the doors and put most of their holdings in cash. The Federal Reserve's aggressive response, lowering rates to near zero; the Treasury and the FDIC aggressive demands on our banks to raise equity began to stabilize our capital markets and gave a confidence to the system whereby people were no longer frightened of Armageddon and started to focus on their own issues and focus on how best they can respond to the markets new realities. Beginning in the second quarter, our clients would begin to look for opportunities to earn more than zero. Depending on the institution needs and risk appetites, some investors only took risk out to the two year, earning 96 basis points which is certainly better than earning zero. Many other investors started to look at opportunities in credit, looked at opportunities in emerging markets and other equity markets worldwide. And just beginning now which I'll talk about shortly, we began to see clients starting to refocus on alternatives. And so a whole beginning of re-stabilization happened at the beginning of the second quarter and certainly has now responded in the third quarter where clients continued to look for investment opportunities. More than ever before, they are assessing their risk management and their tools around risk management. With clients doing this worldwide, markets responded strongly as Ann Marie discussed. It is a significant increase in equity markets and the markets continue to rally. Obviously, from the low points of March 8, the markets are up beyond 50%. Much of the market improvement was more related to dropping that fear of Armageddon and getting re-stabilized and now much of the rally in the most recent few months is a continuation of clients looking to put money to work out from cash into other long-dated strategies. And also importantly, clients are starting to reassess their portfolio mix on a global platform. Many clients are looking at their dollar weightings in terms of our dollar assets. They're looking at international opportunities. So we are starting to see a much greater vision by our clients in terms of trying to respond to the opportunities in the futures. I don't want to say we're back to normal, but we are clearly involved in more conversations than ever with our clients and trying to assess their portfolio needs. In addition, clients are reassessing their liabilities, trying to understand best how can they position their portfolios. Clients are looking to respond to these issues, but importantly, because of BlackRock's platform, because of our mix of products, because of our mix in geographic opportunities; we are seeing more opportunities with clients than ever before. We are involved with more and more commentary with our clients and trying to have them assess their issues. And I will talk about what this all means as we finish our merger with BGI in a minute. Let me just go over some specifics. I will be somewhat redundant from what Ann Marie has said, but I am particularly proud of our third quarter's results of $2.10 on an adjusted basis. Importantly, our operating income is up 32% from the second quarter of $1.86. And also importantly to reflect on was the huge equity down draft from last year. Our operating earnings are only down 7% from a year ago and that reflects the quality of some of the long-dated flows we are seeing and the mix of business that we are beginning to see. The other thing I think is important to note, Ann Marie suggested this, is our operating margins of 40.1%. Our operating margin is a reflection of many things, but I think overall management's presence in terms of making sure we have the right mix of people worldwide. And as a result we've been able to withstand the severity of the markets from last year early into this year. And so our margins do reflect the attention that management paid in terms of cost containment. AUM $1.4 trillion, up 4% in the quarter. This is the largest amount of assets of any reporting period in our history, another reflection on the robust platform of BlackRock in the globalness of our presence. In terms of asset flows, in the second quarter, it is basically consistent stories with my summary of the last year. Clients are starting to move out of cash into alternative investments. We never expected to receive dollar for dollar of outflows out of cash into longer dated flows. We are pleased with the mix of our business in the third quarter. I don't want to suggest that we're not trying to stem and stabilize some of the outflows that we are seeing in our liquidity funds. Liquidity funds are seeing outflows industry wide, which I will talk about. Much of it has to do with banks offering FDIC insurance rates at returns above zero. As I said if you could earn 96 basis points as a bank and if you could attract the positives to 25 basis points or something close to that, A, that is FDIC insured and it is more attractive than close to zero for a lot of people. So, in many cases we are seeing the outflows most in the retail spaces where clients are aggressively moving into these FDIC products. I think this is going to continue for a while. This is an industry issue. And I think we're going to have that drag for some time. But we are also having great dialogue with our clients when the opportunity arises in terms of helping them re-look at what they're going to do with that cash and in many cases helping them reinvest in some other long-dated items. What we are particularly attracted to in terms of the third quarter is our continued growth in equities, which I will discuss in a minute and especially in our international equity platform in the retail space. Our pipeline continues to be robust, about $42 billion odd and we are very close in winning some very, very large assignments, consistent with this fiduciary type of work we are doing with clients and having these very complete dialogues with our clients. In fixed income we continue to have a very strong, active and absolute returns. 18 out of 19 of our products are above the index. This is digging us out of our hole from last year in terms of our underperformance and we continue to be pushing ahead in terms of rebuilding what a very strong fixed income platform. The other thing I'm particularly pleased with in our fixed income area, the majority of our hedge funds are near or above their high water marks of last year. And so if we continued at this rate we will start beginning to see obviously performance based, performance fees in some of these products. In some of the products already we are earning performance fees. In one of our other large products we are pretty near that point. And in the fixed income side, we have in the pipeline about $33 billion of our long pipeline is in the fixed income area. I discussed substantially our liquidity and cash management side. The one thing I would like to highlight despite our flows, our flows are consistent with the industry. The industry showed about 11% decline in assets and that is where we are. As I said earlier, our flows have been particularly hampered and harmed because of FDIC insured products as a competitive product versus money market funds. Equities obviously a lot because of beta. Equities are up $61 billion this quarter but also we had $12 billion of net flows. We've had great performance in our international equities moderate to a little below average in some of our domestic equity products. Some of the noted products that are doing very well though our global allocation fund received another $3.4 billion of inflows. Dennis Stattman and team now manages over $50 million in the global allocation products. Our European equity platform that is continuing to grow and we are continuing to see one of the largest net inflows, mutual fund platforms in European equities is up $1.1 billion. Our old mining products are up $600 million. Our UK income products are in the top docile, in some cases, close to the top centile. And so our flows continue. Month to date in October in our European mutual fund platform we're up $1.2 billion month to date in equity flows. So we are seeing a continuation if not an acceleration in terms of flows into equities because of our global platform and importantly because of our performance in those global products. Probably the biggest change that we witnessed in the latter part of the third quarter is in our alternative space. Our alternative space saw nothing but outflows. From the failures of Lehman Bros. to the underperformance in some of our products of last year we saw significant outflows. In our fund to fund product we are having significant outperformance this year, overcoming the under performance of last year and we're beginning to see some very large mandates from large scale international clients in our fund to fund of hedge funds. In the last four or five weeks we've seen $1.5 billion of net flows in our fund to fund of hedge funds. Some of it is because as I said clients are returning to more risk assets, but importantly, a return to very good performance and consistent performance. On the real estate side, this continues to be a drag for us out. Assets were down about $1.2 billion. I don't think we're going to see real stability in our commercial real estate, multifamily real estate platform until mid next year. And so this is an area we are committed to. We believe long-term it's going to be a great business and, yes, the headwinds remain to be strong. I think the totality of the headwinds is probably reduced a little bit. I also believe the world already knows that the commercial real estate market in the U.S. is problematic, and generally when you know about a problem, the problem generally doesn't occur as severe as the fears are. Problems occur when we don't expect the problems that happen and when they happen, they happen in a much larger way. So the commercial area is something that we're watching or monitoring and we're doing a great job in terms of communicating to our clients about the problems in their portfolios, but our portfolios have performed like the industry, unfortunately poorly. But it is an area that we continue to believe in and continue to focus on. BlackRock Solutions continues to go from strength to strength, continues to strongly differentiate the BlackRock platform versus any other asset manager in the world. Through this platform we're able to provide with our global product mix and integrated multi-product approach to clients that interfaces risk management and asset management. And this truly does allow us to have a more complete dialogue as clients are trying to determine how they're going to manage their balance sheets, their portfolios, their liabilities and how best should they reassess their risk management tools. In the third quarter we have 13 new assignments in our platform. We have a very strong pipeline going into the fourth quarter. I should just put a cautionary note on our BlackRock Solutions business. BlackRock Solutions is going to be the technology product provider for BlackRock in our merger with BGI. This is obviously the largest money management merger. And so they have their arms full. On top of all these new assignments with clients, they certainly have a big job ahead of us in terms of making sure we have that robust one BlackRock technology platform. Let me just touch on two other things real briefly. Our financial institution group continued to see large opportunities. We are seeing huge, huge opportunities in terms of fiduciary outsourcing with insurance companies in the United States and overseas and we continue to believe this will be a big area for us in the future. In U.S. institutional, we still see institutions moving from fixed income into equities. And so we have some of those headwinds in the U.S. space as clients are starting to assess their risk and are looking to take on more risk. I should cite that if our pension funds are going to achieve their necessary results to have assets equivalent or greater than their liabilities, they're going to have to have a higher component of equities and probably even a higher component of international equities to achieve the returns as necessary. And/or if they don't do that, they're going to have to just go back to their clients and lower their payment streams, which to-date I've not seen any pension plan do that or any state fund do that. As I suggested in our retail spaces continue to go from strength even a stronger position U.S. long-dated flows is about $2.4 billion in the quarter. That was offset as I said earlier by some of the outflows that we have seen in the liquidity business. Our international and retail business grew by $8.7 billion year-to-date flows. And so it continued to go from strength. The performance is there. Our brand recognition outside the United States continues to really help us in terms of our business flows. Overall, I would say in a marketplace that exhibited extreme volatility from extreme depression to sometimes euphoria in the third quarter, we fared very well. Probably the most important characteristic that I would like to just cite, we performed very well in working with our clients on top of this largest merger integration in the history of the asset management business. As Ann Marie said, we are closing on December 1st, a little ahead of plan as we were unsure about how quickly we could get through the regulatory reviews and how quickly we could go through our proxy solicitation process. I should say we are not done with these processes yet, we still much to do to accomplish this. But at this moment, we are very confident that we can close on December 1st. I spoke to you twice publicly related to the opportunities related to the integration of BGI and BlackRock. We see as much opportunity if not more opportunity today than we did before. We are very excited about the integration of our all new partners. The BGI team is full of great intellect, great enthusiasm and a great respect for their clients. This is why we believe the cultural fit with BlackRock is going to be so good. The opportunities together are large. We are seeing more smiles today than frowns with both employees because this represents change. The opportunities we have going to clients, discussing beta opportunities alongside alpha opportunities with an overlay of risk management is tremendous. Earlier late last week I had the head of one of the largest endowments in our office yesterday. And they asked us to make a proposal to them and how can we overlay more beta strategies for this endowment. And this is the type of dialogue that we're going to be able to have through the integration of the index businesses of BGI and the very strong position of iShares in terms of offering products to our clients that can solve solutions, can add risk in a very quick, in a very short way through ETF. I should say add risk in a very transparent and a very low cost way. And so we are beginning these types of dialogues. The enthusiasm we have with our business leaders institutionally and retail of the dialogues of bringing beta products and alpha products is really gratifying. And we're just now beginning to have those conversations with our institutions. As I said repeatedly over the last 10 years, as a public company, it is very important as we do these integrations as we grow globally, as we expand our footprint, as we expand products, the one essential characteristic of this firm is that we have a one BlackRock platform, one technology platform with one overlying culture worldwide. We are on our way of doing this but I don't want to say we are complete on this. This is a two-year process, very similar to what it took us to do in the MLIM transaction. It took us two years. We accomplished a lot. So I don't want to just say this is done yet because it's far from done, it's going to take a lot of work, a lot of energy from a lot of people bringing everyone together. The one thing that we did announce between quarters that we went public on originally, we said we were going to change the overall name to BlackRock Global Investors. After a survey with employees at BGI and BlackRock, after a survey with consultants and clients, we heard back from everyone that the branded name should remain BlackRock for the overall company and that's what it will be. And then too, obviously we will retain in the ETF space the iShares brand which has a very unique position in the ETF space. And so we're going to have two strong branded names, the iShares platform and the BlackRock platform. In conclusion, as I said we just finished up our 10-year anniversary as being a public firm. I do believe the model of being public is a great model for investment management firms. We have shown over the last 10 years that we could manage ourselves on a quarter to quarter basis and a year by year basis, and now over a decade. We do believe the business is going to change as evidence of another merger announced last night. We think scale becomes more important than ever before. Clients are looking for a more complete relationship. Clients are looking for a larger product mix. Clients are going to be demanding a higher level of fiduciary responsibility. Clients are going to be demanding for more transparency. And I believe scale, being public is a way in which we could achieve those that connectivity with our clients. I would like to just offer a real large thanks to all the employees at BlackRock, at BGI. I know mergers are not fun. They are stressful. They take a lot of time. But on top of all of that time and stress we've been very resilient in working with our clients. And the behavior on both sides in terms of the merger has been very positive and the outlook is a very strong one for the combined firm on December 1st. Thank you, everyone. Why don't I open it up for questions?

(Operator instructions). Our next question will from the line of Roger Smith with Fox-Pitt Kelton.

Hey, Roger. Roger Smith – Fox-Pitt Kelton: Thanks very much. My first question really is on the RFPs that you're talking about and you said it is much more robust business. Should we think about that happening right now in the third quarter and fourth quarter? Or does the activity really start, the discussions really start today and then the transfers of the money kind of really accelerate in 2010?

I'll let Sue answer that because she hasn't talked yet. Roger Smith – Fox-Pitt Kelton: That's fine.

Hi, Roger. It is a great question. I mean the RFP pipeline represents (inaudible) and opportunities that are in process across an entire spectrum. So, I guess I would say as a rule of thumb that on average you are probably between one and two quarters lag from the time that something enters the pipeline to the time that a decision is made. But that is really an average with the best tail, we don't really have data that tells us that is something you can rely on.

I would also say, Roger, when you are working with clients on fiduciary outsourcing that is multi-products, the RFP process could be six months. It is a very long process in which working with the management team, sometimes their outside boards, and so really depends on the type of client in this RFP process.

What they're transitioning from. The other thing I will say though is that the pipeline that we report on AUM those are completed. So, those are actually wins that have either funded or are yet to fund. And the turnover in that part of the pipeline there is probably less than a quarter of that, that extends beyond one quarter. Roger Smith – Fox-Pitt Kelton: Got you. Okay. And then when I look at sort of the retail flow data that's going on these days, there is a lot of money going into the fixed income world and particularly it looks like it's global and then shorter-term money. Now is there a difference between what the institutional investors are doing right now sort of compared to the retail? Or should we think about that the same way?

Well as I said earlier institutional investors in the U.S. are moving out of fixed income and the equity, so they started to relook at. And so we saw some rebalancing out of fixed versus equities. We want some of that. Did not win some good, but we have seen that. And I think we're going to continue to see that. So you are seeing flows as you suggested in the retail and that continues. And I would just say our U.S. retail fixed income funds were not as robust in terms of our presence in the marketplace as some of our competitors. And this is something that I discussed about a year ago. We're putting a huge effort in it. We're putting a huge effort. We're beginning to see more and more flows on the retail side. But clearly I would say we didn't get the flows that some other firms have gotten because our presence in fixed income mutual funds were not as strong as some of our peers and we did not emphasize it as much up until about a year ago. Roger Smith – Fox-Pitt Kelton: Okay. And then is it fair to say that the flows that are going into the short-term bond funds would be more of a cash type of product or a temporary product and not necessarily a sustainable…

If you're talking about retail… Roger Smith – Fox-Pitt Kelton: Yes.

…I think some of it is just holding pens. I can't tell you; may be very sustainable. We're seeing overall even though clients are adding more risk. I think retail institutions worldwide have a higher degree of desire of having a larger component of their portfolio in some form of liquid assets. So I think if you had a cite the biggest lesson that was learned in the credit crisis was an under appreciation of having liquidity. And so overall I think there is going to be a larger component of investors continuing to be in some type of short fixed income product as a basis for liquidity. Whether that is short-term or not I think a lot of it is motivational change. Roger Smith – Fox-Pitt Kelton: Okay. No, that's fair. And then you're saying it's very important to sort of stay in front of the clients and work with them to meet their needs. How do you do that on the retail side of the business?

We added more and more consultants in our system. This is why as we merge BGI, the iShares team is separate, so we make sure that we don't depreciate or diminish any connectivity we have on our mutual funds side. As I said, we have added net new wholesalers this year and consultants. We're trying to continue to build our presence with our distribution partners. We're having more and more seminars. We're just trying to spend more time with our distribution partners and trying to educate them on the world and products. I'm personally spending more time as is Rob Kapito in terms of giving speeches and seminars for large pools of FAs. I think I have one again tomorrow or Thursday where we're going to meet hundreds of people to try to just get the BlackRock name out and our products. Roger Smith – Fox-Pitt Kelton: Great. And then just the last question, when you talked about the two years it's going to take to sort of put one platform together, is there any change from the time you sort of announced the deal or?

No, by no means. We're going to have a lot of this done in the first six months and some of the harder ones could take another 12 months. But I would say very similar to the BGI transaction in the first six months after closing, a high percentage of the businesses will be integrated on to one common platform. And then it's just the other areas that linger on and take more time as we develop it. So, I would say it feels very similar to the path that we did with MLIM. So, this is not a negative statement at all. We're really right on line in terms of much of the integration processes that we expected when we announced the transaction. Roger Smith – Fox-Pitt Kelton: Great, thanks very much.

Our next question will come from the line of William Katz with Buckingham Research.

How're you doing? William Katz -- Buckingham Research: Hi, good morning, thank you, everyone. I was wondering if you could talk a little bit about free cash flow. I know you sort of addressed it at the initial time of the acquisition with BGI, but now you're a little bit further long. How are you thinking about that as you get into the completion of the transaction?

As you know, Bill, this is a very positive cash flow generating business. So we would expect as we get into a combined firm that we are going to be generating very strong operating cash flows. As we described as part of the transaction, part of our objective in the first year is going to be to pay down about a billion, billion plus of short-term debt. And then we'll leave the long-term debt structure we talked about earlier in place. But clearly, there's going to be many opportunities that we'll have to consider including how to appropriately have shareholders participating in the really success of the firm.

But the cash flow generation out a year. Ann Marie, it will be what? As much as $1.5 billion a year? It could be large. And so obviously that is a year out. We have a lot to do between now and then. But there is no question. Right now we need to work on. Ann Marie said it close to two. Right now we need to focus on the integration and getting it done. How we address cash and cash flow out a year, Bill, that's probably a conversation we could have maybe in June of next year. William Katz -- Buckingham Research: Okay, and the second question I have is just little more tactical. Looking at your comp this quarter you mentioned you sort of increased bonus accruals a bit. It's running about 38% of revenue, a little bit on the higher end of where you've been on that ratio. How should we think about that both on an (inaudible) or existing business, base of business and then sort of on a combined basis?

On a combined basis I don't know if I'm ready to talk about that. We believe there's a great competition right now for top flight people in the business. Obviously, Wall Street is in some cases experiencing some record profits in their trading division especially in fixed income and derivatives. And so we just need to be aware that there is a rapid change in comp. The investment management industry is facing obviously more headwinds than most industries because our trailing 12 months because of the asset declines in the third and fourth quarter last year and the first quarter this year. We started I would say in a deep hole and we are building ourselves out of that. And our key thing is our employees. That's what everyone says and we need to be very mindful and the board and our compensation committee spent a great deal of time recently in our board meetings in making sure that we adequately reward for performance where performance is being delivered. So, I would say if we continue to drive strong results in the fourth quarter, my instincts would be we're going to have a high level of comp ratios in the fourth quarter. But that should not give you any indication pro forma of the new company. William Katz -- Buckingham Research: Okay. Thank you very much.

Our next question will from the line of Mike Carrier with Deutsche Bank. Mike Carrier -- Deutsche Bank: One other question on just what you're seeing from clients. When you look on the institutional side and maybe look at non-U.S. versus U.S., based on what happened over the last 18 months, what are you seeing from an allocation standpoint? When you had the discussions, worried about the capital structure and leverage on the U.S. versus trying to attain the long-term goals of what they need to return on the assets?

I would say, one, we're still seeing clients investing in dollar-based assets. Obviously, we've had a weakness in the dollar recently. We're not to the lows of what we saw in I guess early '08. But, we are still continuing to see flows in dollar-based assets from our clients. We're seeing I would say pretty aggressive investments from Sovereign Wealth Fund recently in terms of investing. So, it really depends on the clients. And we still see some clients who are still very bruised that have severe losses because of credit problems and/or excessive equity positions and so they're still trying to reassess how they want to go forward. I don't think there is one pattern and that's good. What we're seeing from clients continuously, they are asking us to work with them on their liabilities. They're asking us to give them our macro views on different products. Depending on the circumstances around the clients, we are seeing some clients becoming more aggressive. And I think that's indicative of some of the huge flows we saw in our fund to fund business in the last six weeks. And we continue to see clients who remain to be repositioning themselves to have better liquidity. Some of the endowments in the U.S. today are still reeling with too large a commitment in some of their private equity and other types of illiquid products and are wishing still to have more liquidity. So, it really depends on the individual client circumstances as to what the trend in terms of where they're going to be positioned and where we see our growth. Mike Carrier -- Deutsche Bank: Okay. I guess when you look at your institutional flows into the equity products and alternatives into fixed income, do you think what you're seeing at BlackRock is a pretty good barometer or the long-term?

Yes. I do. Mike Carrier -- Deutsche Bank: Okay it is, okay.

I actually think because of our scale now, I should say I didn't say this now. I'm not going to give anyone an absolute number because a lot of this is information I can't provide. But one should assume now just because of beta the combined firm on December 1st will be at least $3 trillion and so we see huge flows we have a lot of enquiry, and so I think what we're going to see in the future is somewhat reflective of global flows. Mike Carrier -- Deutsche Bank: Okay. And then just maybe two for Ann Marie, in terms of the integrated, once you have BlackRock, BGI together, will we see any financials before the fourth quarter report, meaning once it closes on December 1st? And then I guess the second is just on the compensation. Was there any true-up for the first quarter and second quarter of being at a lower run rate this quarter and so maybe it's a little bit elevated?

Well, first of all with respect to when are you going to see some pro forma combined financials, I can't give you an exact date on that. But I think an ideal case we would like to have something available in the December timeframe there and that is what our objective would be. We will have to see if we meet that objective. We want to meet that objective for a number of reasons, including to be able to approach the long-term debt market. With respect to the compensation, I think it is fair to think that when we think about our bonus accrual, we do think about that bonus accrual rate as well as the absolute results of the company. And during the stress periods we allowed our accrual rate to come down and during improving periods we're allowing it to come back up to a sort of more normalized level. Mike Carrier -- Deutsche Bank: Okay, thanks a lot.

Our next question will from the line of Roger Freeman with Barclays Capital.

Hey, Roger. Roger Freeman -- Barclays Capital: Hey. Good morning. I guess I wanted to ask you first on management fees. It looks like it was pretty much flat quarter to quarter, 2Q to 3Q. I guess just given the dynamics with equity flows having been stronger and obviously the equity market performance why that wouldn't have on a blended basis migrated upwards?

I'm sorry, management fees? Roger Freeman -- Barclays Capital: Yes, management fees.

Can you just repeat it again, because I missed the beginning of your question? Roger Freeman -- Barclays Capital: Sure. And maybe just they were calculating we got investment advisory base fee as a percent of AUM, was about 29.5 basis points in the third quarter. It was 29.3 basis points in the second quarter. We thought that would have increased just given the dynamic with equities outperforming fixed income in terms of both flows and market performance. I'm just curious why that didn't move higher. Is there any kind of sort of product mix issue we need to think about?

No, there is really not a product mix issue that you need to worry about. So I can talk to you more about that offline, but I really look at the fee rate. And it really probably has to do with more of the calculation of average AUM than anything else.

I think some of the wins have been indexed products too in the equity. So it's the combination of index, but I think as Ann Marie suggested, Roger, it is when we took the wins and had the win. So it's a lot of its timing. Roger Freeman -- Barclays Capital: But actually that's an interesting comment though, Larry, because we've heard that from others that there has been some shift in the index. Is that just a more of a sort of macro, sort of beta play or is it because of fee sensitivity?

Yes, I think more and more clients are going to use beta. As I discussed earlier, this big endowment is probably going to use fewer and fewer active managers. And they are going to sit down and do much more beta plays. Obviously, if you are more correct in the beta and you have total liquidity now in beta plays and your transaction costs are so small now through ETFs. I think you're going to see more institutions and endowments, who are going to be looking at beta as a mechanism for performance. Roger Freeman -- Barclays Capital: Got it. And actually speaking of endowments, can you remind us how your institutional business is weighted, pensions versus endowments? Because it seems like pensions…

I don't have that in front of me, but I'm sure Ann Marie could give that to you offline. I mean we have that in a big book but it would take me a few minutes to dig that up. Roger Freeman -- Barclays Capital: Okay. But I mean it sounds like pensions are clearly the better opportunity from an alternative standpoint than endowments right now.

Much greater, yes, I mean obviously pension assets are far greater than endowments. Roger Freeman -- Barclays Capital: Right. Okay. And then I wanted to just ask a more generic question around flows and sort of your positioning. If you kind of look at your bond flows, excluding I think the one large client outflow, your net inflows were up about 1.8% in the quarter, right? If you look at mutual fund data, it is up 7%. I think it sounds like the differential is more institutional focus and maybe some under performance on retail funds.

As I said earlier, we were not as well positioned in the U.S. retail mutual fund. We're spending a lot of time in building that. Roger Freeman -- Barclays Capital: I guess then if you kind of look at equities too there as you point out you outperform 3.7%. The industry in mutual fund flows is up 0.7%. I mean that outperformance is a little bit less than the underperformance on the fixed income side. I'm just kind of wondering if you look at flows right now, your institutional versus retail focus, fixed income versus equities, it feels like you are a little suboptimally positioned given where flows are going right now. Is that an unfair characterization?

On retail I think that has been a fact with the huge flows in mutual funds in fixed income. But in Europe we are clearly one of the true leaders there in the mutual fund flows as evidenced by just had inflows of another $1.1 billion in October. And most of that is $700 million of that is in equities and $400 million fixed. So we are still seeing some large flows, but I would say to you, our bond flows are starting to pick up over the last three months. Historically, we saw very little in terms of bond mutual fund flows. I cited this many times as an area that we needed to focus and it takes a couple of years. We will benefit though on December 1st when we have the iShares platform with their superior position bond ETF flows. Roger Freeman -- Barclays Capital: Okay, great. Thanks a lot.

Our next question will from the line of Marc Irizarry with Goldman Sachs.

Hi, Marc. Marc Irizarry -- Goldman Sachs: How are you, Larry? Question for you on the liquidity business and all of the cash sort of on the sidelines from institutions. Where do you think we are in the process of institutions reallocating away from cash?

I think I've told Washington repeatedly, because they have asked me these types of questions, and I said repeatedly that if we could have at best a stable equity market going into the first quarter next year, we're going to see more and more allocation to more risk-based assets. So I don't know where we are. As I said earlier, people will appreciate to have a greater component liquidity. So I don't think you're going to see total outflows of liquidity. But I think you could continue to see some large flows into longer dated assets and into more risky assets next year if we could go into this year with a stable equity market. And obviously if it continues to rally then maybe some of that money is going to be going into it this quarter. On the retail side, clearly, you are seeing people migrate out of money market funds because of the fees into FDIC insured products because of the guarantee and the banks, because the yield curve are able to offer some return on their demand deposits for savings accounts and so that's going to be a threat to the money market business for some time. And when and if the Federal Reserve starts raising rates, that's when, in my mind, start seeing more flows back into money market funds. Marc Irizarry -- Goldman Sachs: Okay, great. And then just in terms of institutions looking for beta to leverage themselves to either I guess tactically to higher markets, where you are seeing more search for alpha, is it in active international equities? I guess alternatives is a part of it. But could you just comment maybe on where you're seeing the most demand for active equity management?

Definitely, most of is in non-U.S. equities. As I said, a global allocation fund, our European equities, sector funds like where our strength in oil and gas and mining funds. I think if you just look at the different sectors you're seeing more and more flows. And so, it's consistent I guess with the indexes worldwide. Our Latin American fund continues to grow. Obviously, that's a big area of ETF growth. And so clearly, as I said earlier, if U.S. pension plans are going to properly meet their liabilities and if you think the U.S. economy is only going to grow 2%-ish over the next few years which would then probably slowly put a ceiling on how much U.S. equities will grow over a considerable period of time, to get those types of returns on the assets is going to require a far larger allocation to non-U.S. It just has to because global growth will be greater than the U.S. And so this is one thing how we're positioning ourselves to try to really build our platforms on non-dollar-based equities. And so we think that's where the trends will be certainly into next year. Marc Irizarry -- Goldman Sachs: Okay, great. And then just on the fiduciary outsourcing mandates, can you give us a sense of what the fees are like on those types of mandates and then how the growth in that business has tracked recently, maybe what you are seeing in terms of insurance companies outsourcing, general accounts and how that could play into growth in that business?

It really depends on the complexities of the assets and the requirement of the clients business. It could be as low as six basis points and probably as large as 18 basis points and then on some subspecialties could be 40 basis points on some of those very unusual products. So they generally are very large scale, large blocks of assets. They generally are traditionally lower fees than our average fees. But because they are in many cases such a concentrated amount of business with one client, the margins of those businesses despite the low fees remain to be very strong. So we do look at in terms of as a contribution. So the fees are looked on, but we're still trying to remain the same type of contribution margins. So it is really dependent on how many people do we need to allocate to a client. I mean its one large outsourcing. We have tens of people working on this one as we prepare for closing. This is one of the large assignments that's in the pipeline and we have tens and tens of people working on it as we get prepared for the closing of that. And it is multiproduct and the fees do range depending on the complexity of the products but overall the fees are larger. As I said, we are very close in winning another very large fiduciary outsourcing and the fees are in that range too. And on top of that we have had dialogues with institutions who are seeking to outsource large components of the balance sheet that require a little special attention. And so we are mindful of our fees, we are mindful of our margins, but in some cases fiduciary outsourcing business, in terms of average asset fees could lower them. Marc Irizarry -- Goldman Sachs: Okay, great. Thanks.

Our next question will from the line of Jeffrey Hopson with Stifel Nicolaus. Jeffrey Hopson -- Stifel Nicolaus: Okay, thanks a lot. I just have one question on the margins. Obviously, it's been a unique period here, but as you move forward at what point do you start reinvesting become more aggressive to spend to bring assets in the door etc.? Just trying to see if there is going to be some permanent efficiencies gain here and how you think of margins moving forward?

Well, it's very interesting because as we go through a time right now, as a traditional business just BlackRock historic, I would say this is the high side of where we would be on margins because we do want to continue to reinvest in the business. We are now going to be bringing two firms together. I think traditionally what we've seen in the historic results, the index business may have an opportunity to have a higher return than the active business. So I really think that's something we'll get into more next year. But what I would say very clearly is we're going to balance, appropriately balancing, investing in the business to continue to have revenue growth with margins. We're not only about optimizing margins by any means. So this business does have the opportunity to have a very healthy margin on a continued basis. Jeffrey Hopson -- Stifel Nicolaus: Okay, thank you.

Our next question will from the line of Craig Siegenthaler with Credit Suisse.

Hi, Craig. Craig Siegenthaler -- Credit Suisse: Hey, Larry. Good morning, everyone. First, I'm just wondering if you can talk about the conversations you've been holding with clients over the last three months, especially ones that may feel they are over allocated to the combined BlackRock BGI managers. And I'm wondering if passive is big part of that mix, is that really less of a risk of an outflow there because they are mainly focused on active management risk? And does any this in your mind represent a level of risk for flows over the next year?

Well, when we announced the transaction, Craig, we did assume a large block of assets will be at risk when we announced the transaction. I think as I said in our last quarterly update that we were surprised with the response of the clients in terms of having a dialogue with us. We're still at risk with the number of clients. But overall clients are beginning to see the positive nature of scale. They're also looking at passive as you suggested a little different than active and they're raising questions with us, with their consultants, with their investment committees, should they separate the passive component with the active component because they're very different. Obviously, having even passive and active though with any client they do have risk with the enterprise BlackRock. And so one of the strengths of our firm and the scale and being public and I think our fiduciary reputation, our market cap does give our clients more and more comfort. So I would say overall the dialogues have been very positive. I would say from our views of potential outflows due to scale with our clients I believe we're going to see less outflows today than we originally budgeted at the time of the transaction. But I don't want to suggest that we're not at risk with some clients because we certainly are. But overall, the dialogues are good and in some cases we had a couple of dialogues with the clients who are too concerned with our scale and yet they've given us more business after the dialogue. And so it really depends on the client, on the nature of the client, the risk they associate with us and so, I don't think there is any one way of measuring it. But I would say clearly the dialogues have been more positive than we ever dreamed that it could have been at the time we announced the transaction. Craig Siegenthaler -- Credit Suisse: Got it. And then second question, I'm just wondering if you could kind of remind us what the derivative exposure is to the Peter Cooper Village Stuyvesant Town investment from the real estate business on the balance sheet?

Yes, as far as the balance sheet we really as of last year took that down to really nothing. We don't have balance sheet disclosure to that particular investment. Craig Siegenthaler -- Credit Suisse: Got it, all right, great. Thanks for answering my questions.

Our next question will from the line of Mr. Chris Varr [ph] with CLSA.

Hi, Chris. Chris Varr – CLSA: Good morning. Most of my big picture questions have been asked and answered, so I just have a technical tax question. What do you think the tax rate will be going forward particularly if your non-U.S. business is growing and following the BGI deal?

Well, are you asking that question? I wouldn't tell you anything different with respect to this year. And I think as far as conversation next year goes, I'd rather talk more fulsomely about that later because there would be some effect to our tax rate.

We also have to wait and see where the Obama administration is in terms of what ultimately happens in terms of taxation of foreign revenues. I think there's a lot of uncertainty as to what our overall tax rate will be. Clearly, one can say if we have more and more non-U.S. clients and we're doing that business more and more outside the United States, either in London or Hong Kong or Tokyo, one can presume that our overall tax rate should be lower. That's just a function of tax rates in the various jurisdictions. But it really depends on how we repatriate some of that money and then we pay the U.S. tax. And it's a function of the business mix.

And just to be clear, the other thing I would mention is there will be what I will call tax noise associated with that foreclosing of the transaction. Chris Varr – CLSA: What do you think like just say an average over the last three years or four years excluding the tax benefit this quarter just a good starting point or should be thinking something like just the marginal tax rate in the U.S.?

What I would say is the BGI business certainly does have a very meaningful U.S. component, that's important and so you need to think about when you're thinking about the blended tax rate.

And BGI has its U.S. platform in California, so you have to take that into account too. We did that in a pro formas when we discussed it with you; big part of their business is California. Chris Varr – CLSA: Yes. Okay, thank you very much.

Ladies and gentlemen, we have reached the end of the allotted time for Q&A. Mr. Fink, Ms. Petach, are there any closing remarks?

I look forward to talking to everyone sometime after closing. I look forward to the closing of this momentous transaction and looking forward to welcoming all new BGI partners alongside with our BlackRock partners. Everyone enjoy the quarter. Talk to you later.

Ladies and gentlemen this concludes today's teleconference. You may now disconnect.