BlackRock Inc. Q3 2008 Earnings Call Transcript

Oct.21.08 | About: BlackRock, Inc. (BLK)

BlackRock, Inc. (NYSE:BLK)

Q3 2008 Earnings Call

October 21, 2008 9:00 am ET

Executives

Laurence Fink - Chairman and CEO

Ann Marie Petach - CFO

Robert P. Connolly - General Counsel

Analysts

Hojoon Lee - Morgan Stanley

William Katz - Buckingham Research

Roger Smith - Fox-Pitt Kelton

Craig Siegenthaler - Credit Suisse

Prashant Bhatia - Citi

Operator

Good morning. My name is Christy and I’ll be your conference facilitator today. At this time, I would like to welcome everyone to the BlackRock Incorporated third quarter 2008 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 session. (Operator Instructions) Thank you. Mr. Connolly, you may begin your conference.

Robert P. Connolly

Good morning everyone. This is Bob Connolly. I’m the General Counsel of BlackRock. Before Larry and Ann Marie 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 lists 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.

And With that, I’ll turn it over to Ann Marie.

Ann Marie Petach

Good morning everyone. I’m going to start off just mentioning that our third quarter reported GAAP results are $1.62 per share. But from here forward I’m going to focus on as adjusted results. I would note that in our press release, we have included an as adjusted measure for both operating and non-operating results. We previously have not shown an as adjusted measure for non-operating.

We thought it was helpful to adjust for the same deferred compensation related movements that we have been adjusting for an operating as one affectively hedges the other. The investment income in non-operating exactly offset the compensation related expense in operating.

Third quarter, as adjusted earnings are $229 million or $1.71 per share. The as adjusted results reflect as adjusted operating income of $431 million or $2.09 per share and as adjusted non-operating losses of $79 million or $0.38 per share. We are going to first discuss operating results; I’ll come back to non-operating in a minute.

As adjusted operating results are up 2% compared to the third quarter of 2007 and down 3.5% compared to the second quarter. Year-to-date operating earnings of $1.3 billion are up 25% compared to 2007. Revenues of $1.3 billion are down 5% compared to the second quarter and up about 1% compared to the third quarter of 2007.

Third quarter, revenues reflect effects are being driven by three primary factors. First, the effects of markets and foreign exchange particularly on our international equity and alternative products, which include large investments in funds related to energy and natural resources. Markets affect both base fees and performance fees, which are often dependent on absolute performance, a difficult threshold in this market.

Second for the month of September, flows out of our prime money funds, which are reflective of a general market retraction from these products. Note that cash asset are about flat compared to a year ago and average cash asset are up materially from a year ago; and third, strong growth in our BlackRock Solutions revenues driven by the advisory business and growth in Aladdin assignments.

Compared to a year ago, base fees are up about 6% driven by alternatives including the addition of the former Quellos asset and higher average cash management asset offset partially by lower base fees on equity. The lower equity base fees reflect market and foreign exchange factors more than offsetting net new equity and balanced assets of $14 billion.

Compared to the second quarter, base fees are down 7%, six percentage points of the 7% decrease is explained by base fees on equity products, particularly on our international mutual funds. Operating margins as adjusted in the third quarter is 38.4% an improvement compared to prior period.

GAAP compensation expense of $468 million in the third quarter includes the marks on deferred compensation and the compensation to be funded by PNC and Merrill. Adjusting for these factors, compensation expense of $490 million is down about 4% from as adjusted second quarter compensation expense of $510 million primarily explained by lower incentive comps.

Compared to a year ago, comp expense is up 1% reflecting growth in people and expense recognition of historic stock awards offset by lower incentive comps. The third quarter compensations revenue ratio as adjusted for these factors is 37.3%.

Third quarter, general and administrative expense of $171 million is down $35 million from the second quarter and $29 million from the third quarter of 2007 explained primarily by foreign exchange effects of about $32 million compared to the second quarter and of about $27 million compared to a year ago.

The balance sheet related foreign exchange adjustment had a positive effect on third quarter operating margins. The absence of closed-end fund launch costs in the third quarter also improved G&A compared to prior period. Portfolio and administration costs are reflective of asset sales primarily into our liquidity product and other mutual funds.

Now, moving to non-operating earnings. As adjusted non-operating losses of $79 million in the third quarter reflects marks on BlackRock's capital invested side by side with our clients and ceding new product. These investments are not proprietary in nature. To put this number into perspective, the $79 million represents rather 6% decline on our $1.3 billion portfolio and when I talk about the portfolio right now, I'm excluding the deferred comp assets and this is relative to markets, which were down substantially more than 6%. As a reminder, our portfolio is comprised primarily of five asset categories.

Hedge funds and fund of funds, distressed credit funds, private equity fund of funds, real estate and marketable securities, which we hedge as appropriate. Each asset categories represents between 15% and 25% of the total portfolio. Many of these investments are long-term in nature, while the marks represent the market valuation of the portfolio at a point in time.

These marks do not reflect BlackRock's expectation of holding these investments for a long period of time or in the cases of some of the distressed credit until maturity. The $79 million loss is explained primarily by marks on distressed credit funds totaling $48 million, hedge funds totaling $18 million, real estate totaling $14 million and private equity totaling $4 million offset partially by net interest and other.

The marks on the distressed credit funds are reflective of clearly distressed marks on this asset class and the leverage in these funds. Again, these are long-term funds. The cash flows on these investments continue to perform in line with our expectations, when we launched the product. We would also note that year-to-date non-operating losses on Peter Cooper Village totaled $31 million and that 2007 non-operating gains on Peter Cooper Village totaled $31 million.

[Beta] has affected the entire market, including our business results. Our business has grown and our operating results have improved compared to a year ago. We have a diversified business by asset type, client type and region. We expect this will continue to provide balance to our results and growth opportunities overtime. Our Solutions and Advisory businesses are growing and we are seeing incremental opportunity in an adverse market. Our pipeline remained strong at $62 billion.

With that, I'll turn it over to Larry.

Laurence Fink

Good morning, everyone. The best way to start to discuss this quarter, I need to quote Dickens’ when he said these are the best of times and worst of times and I’d say the third quarter for BlackRock and our industry it was the best of times and the worst of times.

The macro environment has been very hostile to the investment management business and hostile also to BlackRock. As I said in the press release, we are not immune to this. Like all in the industry, we are affected by the markets. We have lost assets as investors have withdrawn in markets such as money market funds, as there been a flight to quality and everybody is rushing T-bills and these are done significantly in equities, in fixed income, and in hedge funds.

I have never seen in my 32 years of business, seeing all market deteriorating all at the same period of time. So, all these means is revenues are down. In our non-operating earnings, obviously, we took some significant losses, albeit only a 6% loss. I'll discuss that little later, but this is another indication of what has happened in the marketplace.

In other words, it's very hard for us to control these macro elements that are in the marketplace. Like everyone else in the industry, we are facing these wins. But let me talk about the differentiation of BlackRock. So, we are facing some very tough headwinds but I can sit here today and say we are in a better position today in building BlackRock into a global, financial investment firm with a global platform, a global brand.

We are in a better position today than we have ever been before. We are differentiating ourselves more than anyone else in the world right now in terms of being in front of this, being in front of our clients, which I’ll discuss a little later, working on situations that are very public and being a very good advisor to some institutions that are looking for advice and are trying to mitigate some of the troubled problems within their company.

We are being asked globally now to work with companies. We are being asked globally as to what should be solutions in terms of how do we manage our portfolios going forward. So I believe our longstanding approach in working with clients to solving problems, whether they are inflicted problems or just macro issues. We are in a very good position especially, when the market turns around to really benefit from the increased visibility and positioning BlackRock has.

I believe more than ever our One BlackRock model bringing all our capabilities together to provide the best thinking, independent advice and timely products to our clients is more important than ever before. Because of all products that have correlated from money markets to fixed income to equities, to hedge funds, to real estate, our clients are looking for a more advice that interconnects all the different products.

I don't believe advice with one product will solve any problems in this marketplace today and a more connected integrated approach like our One BlackRock approach is the approach that clients are looking forward and I believe this is the approach that will allow us to grow above industry trends in the future.

So, we continue to work with pension funds and pension funds are worried about now their mismatch between assets and liabilities, because of the incredible decay in their assets. More and more clients are looking for liability driven solutions. Clients are looking for more holistic solutions like fiduciary outsourcing, where we are involved with more and more clients, especially in Europe in terms of trying to help them navigate their entire balance sheet issues. And all of these conversations require us to provide more global solutions, products that are worldwide and across all multiple asset categories.

So, since this crisis has began and I’d say it started probably March of this year, it started to get much worse last summer. We have actually raised over $18 billion of products in terms of trying to help clients solve solutions and taking advantage of the market volatility in the market imbalances.

We have been very visible in terms of the wider, a range of services; we are providing our clients in terms of our BlackRock Solutions platform, working with clients for the long-term portfolio liquidations, balance sheet valuations, complex risk management, monitoring assignments, and operational risk management solution. So, we are involved more than ever and I’ll talk about that in a little more detail later on.

So, our One BlackRock model has helped us even in these troubled times. Our One BlackRock model is giving us the position to continue to build even with these hostile wins. I just would like to say very loudly though, so with all these new wins and with all these new opportunities that we see, it is very hard to mitigate those wins versus the extreme market decline that we have witnessed.

The Beta in the world, the macro issues are far more overwhelming than some of the incremental changes that we are making. But in terms of how BlackRock navigates and how BlackRock has positioned, I believe, it's those little transactions, they maybe some little invisible, but those little transactions relative to [Beta] is what’s differentiating us, is what’s making us a better firm and will provide us a bigger opportunity in the future to continue to grow.

So, I can't be prouder of our firm, times are very hard, BlackRock is not immune, but I think our operating results in terms of operating income is a good example of how we have been able to navigate opportunistically in this marketplace. Before I discuss some of the specifics of our quarter, let me talk about how BlackRock has positioned for the future.

With a transformation that's going on in our banking industry, the nationalization of banks, capital infusion by governmented banks, consolidation of the banking industry worldwide and most importantly with banks being required to have a much higher capital position in Europe some of the countries are demanding a Tier 1 capital position of 12%, some countries at 10.

If the market continues to demand these high capital ratios for more than ever for the commerce to survive globally, we need a vibrant global capital market. So, as banks require more capital, obviously, it means A, they're going to have less leverage, they are going to have less assets on their balance sheet and one of the outgrowths of this will be a larger, more integrated capital market.

The capital markets will need to be larger for our world to continue to grow and it will only grow, as we grow our global capital markets. I believe firms like BlackRock is well positioned for those outcomes than any firm and I believe the role of the independent asset manager as global capital markets need to grow, these global capital market, these investment management firms should thrive in this environment and I’m here to say we are around the corner yet, but it is very clear to me, that we need to have a vibrant global capital market.

So, as the world starts healing itself and I believe we’ll play a much larger role in these global capital markets. I'm not here to suggest it's going to happen in a week, it maybe a year from now, maybe two years from now but it's very obvious to me with the transformation of our large national lenders or banks, there going to have to be a bigger role for global investment firms in the global capital markets.

Because of that, as I said publicly in the past, I do believe all investment firms should be regulated too because the role of global capital market is only going to be more important and all participants in these global capital market should be regulated and I look forward to the time, when we have regulators who are working together on a global basis and making sure we have a better market, a safer market and a market that can allow capitalism globally to survive.

A good indication how we are beginning to see some thawing, as a result of the global transformation from national, from the central banks and the monetary authorities to recapitalize our banking systems globally, we are beginning to see some thaws, LIBORs from last week is down a 100 basis points.

We still have about another 125 basis points of reduction in LIBOR to get it more normalized. But we have accomplished a good 40%, 45% of the renormalization of LIBOR and that’s only just a beginning. We need to continue to grow and see yield spreads in bonds narrowing.

Without citing names, two of our largest banks in the United States, one of them is trading 500 over the five year treasury. In other words, they are funding five year liabilities at seven and three quarters. There is another large bank, one of our top five banks in the United States are just funding five year debt at six and three quarters.

If you add on a normalized return on asset, you add another 125 basis points, so you are seeing to lends any money up in the five year, whether it’s a nonconforming mortgage, whether it's a student loan, whether it's a small business loan, they need to get above 8% or 9% to make it profitable and this is what's causing the stress in main street.

So, we are seeing this breakage finally in LIBOR. We have not begun to see breakage in the credit markets beyond five years and the reason why I’m saying five years, as you know, the FDIC is ensuring, new bank paper three years or less. And so, the five year area which is very critical for small business loans, for the mortgage industry.

We are still seeing very high interest rate and I’d recommend that everyone pays attention to the funding rates of these large national banks in the US and other players as to what their funding rate is, to see if there is a true thawing in our capital markets to allow us to have a better main street market.

The last thing I’d like to just alert everyone is that is in the high yield area. High yield area triple B Index as of this morning is 950 basis points over comparable treasuries. So, we are talking close 13% for double Bs, and we are talking a spread of 14.25 for the high yield index over treasuries.

So, we are talking about interest rates that are obscenely wide, they represent in many cases some very good value, but this is just an indication of the stresses in the marketplace and we all have to just take note of that and when these markets start unthawing, I believe we’ll start seeing a better economy and hopefully with that unthawing, we are going to see better flows and a better equity market going forward.

Let me get into the specifics without talking about the world and but I do believe we needed to talk about where BlackRock is positioned in the world. As Ann Marie suggested, our AUMs fell about 12% to be exact, we fell by $169 billion, which is an awful painful number, a $109 billion of that was market, between market and FX, which is another way of market in my mind, and then $63 billion was liquidity, which I'll get into in a minute and $6 billion was long dated assets, which was in my mind a very large surprise for us but if you look into the details, about a $9 billion client terminated us because of a merger.

They merged into another insurance company and they managed the assets internally. This is something that we are aware of for six to nine months. We are hoping to have a portion of its being managed internally and they decided to keep it all internally. So, away from that one problem, overall, we were fine. And I'll go into some of the other outflows, some of it was international equities, where the retail business in Europe has been very, very hostile and we have actually done very well in a very hostile environment.

The one thing I’m particularly proud of Ann Marie discussed is our operating income of $209 was very strong and is an indication of despite the hostile market environment, BlackRock has been able to incrementally add revenues be it BlackRock Solutions or other types of assignments to be additive to our operating platform and that's been offset by $0.58 loss in our non-operating income.

Let me talk about the liquidity business at BlackRock. First of all, while we were on this conference call, the Federal Reserve has announced a new facility for liquidity funds. This is something that the industry has been working on diligently now for the last three weeks. This is a very big event. In my mind, this is going to help commercial paper.

This is the first thawing that I really see in terms of helping the commercial paper market unravel itself. This is creating a conduit facilities, in which we’ll be able to, if necessary, sell commercial paper into the conduit, but conduit will repackage the commercial paper into ABCP which is a legal asset that the Federal Reserve can acquire and buy, and then, but it provides liquidity, if necessary to the liquidity funds.

Why this is so important? Because of the fears of illiquidity; because of the fears of outflow that we witnessed last quarter, which we are starting to see reverse this quarter. Money market funds have refused to extend any commercial paper beyond a day or few days. This has put enormous, enormous stress on the commercial paper market, enormous stress on corporations funding, their liquidity needs and this facility in our mind is going to be one of the a great event in terms of creating the unthawing the commercial paper markets.

It will allow people like BlackRock and other money market funds to start extending our purchases of CP, if we think that's an appropriate investment to do. We believe that duration is the appropriate duration to have for commercial, for our money market funds and it gives us the flexibility.

We are not reliant on illiquidity in the marketplace. We can now take on more responsibility of trying to unglue the marketplace. We could take on commercial paper, way beyond one day if we want a 180 day or whatever, we could buy that paper now knowing that we’ll ultimately have some form of liquidity at the backend.

So, we look at this as a very big facility. As I said, we have been working on it very strongly and I just wanted to emphasize that because it just broke, while we are on this call. So, having the large outflows, all the large outflows was in the prime rate funds and then rates adjusted, our average assets are much higher than our expired assets.

Most of the outflows occurred in last three weeks, certainly right after the reserve fund broke the dollar and after the Lehman Brothers bankruptcy, which caused tremendous disruptions in the industry. The industry lost over $400 billion net that’s after the run up in government funds. BlackRock and a few other firms had about similar outflows; we are getting to the other names, if you ask me, why we had these significant outflows? We were one of the biggest winners in terms of growth in the money market industry.

We had opened up many new portals working on institutional portals with different platforms and I’d say because of the fears in the marketplaces, it was these portals that I think experienced the greatest amount of outflows and so we were particularly harmed working with some of these portals. In our direct access to our clients, we probably had more stability than through these portal platforms, where we are participating in.

If we had more retail platform assets, we’d have probably had less outflows because a good majority of the outflows were in the institutional side. As Ann Marie suggested, we have had now with this over $12 billion of inflows in the first three weeks of October. So, there certainly is growing stability in the money market business. I believe that there is a great future for firms like BlackRock in the money market business.

We were very responsive to our clients; there was not one day in which we delayed payments to our clients. There wasn’t one day that we were frightened of any issue of having anyone of our clients fearful of breaking the dollar. Our credit team in the liquidity side performed brilliantly.

And so we believe we’ll be a larger player in liquidity management business in the future and we believe we can position ourselves in that way. I do believe the one lesson to be learned especially with the reserve fund is, I believe, the small little often money market funds are going to be very vulnerable. I believe that larger platforms are going to be the net beneficiaries; the well capitalized firms are going to be the biggest beneficiaries. So, I believe there is still much to be changed in the liquidity business and I believe we’ll see a consolidation in a very large scale in the liquidity business.

In fixed income, it's fair to say performance has been mixed in some product area is very strong; in some product area is very weak. What I can say though across almost all platforms, we have done better than most of our competitors in terms of this and we are winning some large assignments.

Most recently, we made a presentation, little sheepishly, wherein one of the products, we are 300 under the benchmark. We won because the terminated manager was 1,200 under. And so, I’m not here to suggest we are proud of what we have done. I’m not here to suggest we don’t have much room to improve we do.

But I believe our risk management platform; our ability to minimize and mitigate risk in fixed income has proven to be successful albeit not successful enough. And this is something we can’t be proud of but it is something that we are on a net, net, net versus our competitors we have done fairly well in terms of that.

In equities, we had some great opportunities and great disappointment. The opportunities we continue to differentiate ourselves and our global allocation fund and we continue to be one of the largest net inflows in that product area globally. It has been a very large win. Our team has done exceedingly well in the ups and down markets and calming investors, as this has been a very large growth fund for us.

Dennis Stattman and team have navigated quite successfully in terms of trying to minimize exposures, as we have seen meltdowns globally. If you look at the global the emerging markets have melted much more than the US markets, in some cases down as much as 70%, India down 50%, China down 50%.

So, when you think about the market disallocations globally and having our global allocation fund mindfully doing much better than some of the giant pitfalls and keeping our clients calm. It’s been a very strong positioning for us and I believe it will position us well for the future.

The second area, where we are just beginning to see some real nice inflows and that is our European equity team. This is the team that came over to us a year ago. We have had great relative performance.

This is actually the single category of the greatest outflows in Europe. And yet, we are now, because of our performance, we are starting to see some real inflows and I believe as the markets start unthawing in Europe and as equity inflows begin to turn positive in Europe, this will be one of the large, large products that we’ll grow in the future.

Some of our large NAV declines though, which are obviously disappointing are in the areas that we did so well for the last year and a half. I think as I suggested in many other conference calls, we have always had a very strong positioning in our natural resource funds, our energy, mineral and mining funds. Well, if you haven't noticed these are the products that have probably gone down as much as financial institution products.

Metals and mining’s products are down in some cases 50%, 60%. And this is some of the reasons why we had a larger NAV declines in the last quarter because of the breakdown in these product areas. It is not because of bad performance, it is just a function of how we are positioned and we have large exposures in the energy and mining area and we continue to believe having a large platform in these products in the long run will prove to be a good business strategy. But this is some of the areas that are offsetting some of the great strengths that we are building upon in equities.

In alternatives, I think it's fair to say there is not one product in alternatives have done well. Unless, you could call treasury bills an alternative. Hedge funds, private equity, real estate all were under extreme pressure. Our funds were under pressure. We continue to believe in the alternative space.

We believe there is going to be a huge washout in hedge funds. We believe there is going to be a very large washout in private equity and this is where our clients are asking so many questions, as so many of our clients rushed into alternatives in many cases some of our clients be it pension funds or endowments have 30% to 50% of their assets in alternatives.

I don’t think any of them expected to have this types of setbacks in terms of declines in NAV, but I think more certainly no one have expected to see such illiquidity. So, I think one of the lessons to be learned will be a greater appreciation for liquid assets and I do believe a lesson to be learned will be clients are going to have a more conservative portfolio.

I’m still a believer in alternatives. I believe there is going to be great opportunities for successful hedge fund strategies. I’m actually very bullish on real estate strategies as I believe in some of the real estate platforms, especially multifamily will be a product that we’ll be able to provide coupon and some price appreciation albeit, its going to be much lower than historical returns for this product areas. But I do believe real estate will provide a very safe platform for a lot of investors.

Let me breakout retail and institutional businesses. As I said earlier in terms of what’s going on in Europe, we did see outflows in our equity platform of $4.4 billion in our international retail platform. This is not something we are proud of. But I can give you some statistics as of August unfortunately the European industries have not provided us with the September numbers though.

But as of the end of August, year-to-date outflows and year end equities in Europe and I’m not talking about European equities, I’m talking about the mutual fund platforms in Europe. Outflows as an industry, not at BlackRock were $68 billion in equity outflows. As of August, we have $2.5 billion. We actually have gone up in the rankings in terms of the largest mutual fund platforms in Europe.

As of August, I don't know what September is because I haven't seen the numbers. As of August, we are now ranked the second largest mutual fund platform in Europe. This is up from like six when we did our merger two years ago. So, we continue to build. We continue to enjoy greater presence. We continue to drive more and more business albeit in a much more hostile environment.

In the US, I’m pleased to say despite much outflows we had $1.4 billion of net inflows in US retail. Our team continues to build our strength in third-party distribution and some of the large third-party distributors, where we were ranked as low as 18th place, we are now ranked as high as third place with external managers and we continue to build a very strong presence with the third-party platforms.

For those, who are following us, when we announced our merger with MLIM two years ago, we said this is going to be one of the larger opportunity for BlackRock and I can say fairly we are achieving those opportunities and we are differentiating ourselves. Our goal is in the next year to continue to build out this area even with the hostile equity markets.

We hope to be expanding our footprint in the independent channels in the retail space. We believe this is a very important point for us to continue to build out. So overall, retail flows are negative. But overall, we believe we are well positioned and we are looking forward to continuing to build out that platform.

On the institutional side, we are clearly differentiating ourselves. We have had conference calls sometimes twice a week conference calls globally with our clients. Our clients are looking to BlackRock more than ever before to help them understand what does this all mean.

And as I said we have had these weekly because every week, there has been transformational changes in our business environment, transformational changes in how we should be looking at the future and our clients are looking to BlackRock to provide more and more leadership for them and I believe we are doing this.

We are very well positioned to continue to build out our platform. We are involved as you saw in our pipeline which I’ll discuss a little later very involved in some very large searches and wins. And so, this is just institutional clients have not frozen. I’m not here to suggest in the month of September and actually in the first few weeks of October many clients from sovereign wealth funds to insurance companies, globally clients were frozen and asking what does this all mean?

Clients globally are reassessing, what does it mean for them and how should they be looking at the environment. I can't tell you now, we are starting to see the clients asking more proactive questions as to how to better utilize their cash, how to better utilize their investment strategy and most importantly, what should BlackRock be doing for them? So, I do believe we are very well positioned globally with our institutional client base.

BlackRock Solutions, obviously in the news a lot. We continue to differentiate ourselves in a very large way. We are involved with so many large visible assignments. This is an area that we could not be more proud of. They have risen to the occasion every time. The team, I don't believe has had a weekend now for six months.

There is no such thing as weekends. I feel sorry for some of them. I apologize publicly to them and their families because they have missed a lot of weekends with their family to get the jobs done. But most importantly, our clients are respecting us. Our clients are looking for us to do more.

We are involved in some very sensitive discussions with our clients. We are involved in very large advisory assignments and how to rebalance clients’ balance sheets. And potentially we’ll be involved in some very large assignments that require either forms of liquidation of assets or b, restructuring of assets and liabilities.

We are very proud of year-to-date, winning 52 new assignments in this space and 60 new assignments in the last quarter. We have been a beneficiary of some of the downsizing of Wall Street because we have been able to hire people to be very additive to our existing team.

So, whereby in the last few quarters, I have said you know, we were being stretched. Well I'm here to say we are still being stretched but we have so much more capacity today than we did last quarter. And we are taking on these assignments even as of today. I'm aware of another new assignment and evaluating another $20 billion balance sheet of another institution that is sitting with some problems.

I’d also like to just announce, which we announced earlier, it is the addition of impact to our BlackRock Solutions space. It is going to give us far better functionality in the equity risk management space. Hopefully by early next year, as we integrate that technology on to the Aladdin system, we’ll be able to provide functionality in all credit areas and in equity areas and I believe it will give us much more ore opportunities to build larger, more comprehensive relationships.

I also believe with some of our clients, who have already have the Aladdin platform on their platform. They are going to be looking to add possibly the equity component to it and impact did bring some very large clients globally to us and hopefully, we’ll be able to add some functionality in the fixed income space for those clients. So, we continue to play a large role. We are involved in some very important discussions right now. I believe this will continue to differentiate us for the coming year and I believe we’ll continue to build a more important platform in this space.

Last few things, I just want to add, pipeline. Pipeline remained to be very strong. We have mentioned early $12.5 billion of new cash mandates, $14 billion of new fixed income mandates, $3.2 billion of equity mandates. I’ll say though we have about a $1.5 billion in outflows in alternative though.

We are seeing some of our inter fund of funds [spaces] outflows. We are seeing in some of our single strategy funds some outflows and I think this is an industry wide issue. I think our outflows are actually fractionally smaller than the industry itself. So, and then we have one more big BlackRock Solutions Advisory Assignment that should fund sometime, I thought it will fund last quarter, it should fund sometime this quarter for about $32 billion.

On the non-operating side, Ann Marie spoke about that very loudly, loss of $0.58 or 6% of NAV of $1.3. I can say very clearly about 90% of those losses should come back to at least breakeven. Ann Marie did suggest that in many of those products we have term assets, [retirement] liabilities and term equity. We have no mismatch, but because we are a GP, we do mark-to-market everything and in the three cases where we have had some extreme mark-to-market changes, I can tell you the cash flows that we projected in terms of the payment stream to ourselves and to our clients are actually better.

The defaults and delinquencies of these big pools of mortgages are actually less than what we have forecasted and yet the marketplace has continued to drive down some of the prices obviously in the market calamities with the Lehman failure and with now the de-leveraging of hedge funds, who are big buyers of these products only four months ago have become huge sellers of these products now as they are de-leveraging. We believe this impairment is temporary and we believe we’ll get most of this back.

Out of the entire losses in the non-operating platform, I believe, there is less than $9 billion of what I’d define as probably real losses that may be permanently in terms of real losses. So we do have some losses. I’m not here to suggest we don't have some. But the majority is purely a mark-to-market issue and I’m very comfortable with the assets and our strategies within our platform.

And I can tell you very clearly, our clients, who will invest in these products, are fine too. They understand the vagaries of mark-to-market and they see the cash flow characteristics and they are meeting exactly what we have forecasted and what they forecasted.

So, in conclusion, I think BlackRock is differentiating ourselves more than ever. I think we are differentiating and I should state we are differentiating in a positive way more than ever. I believe we have some great opportunities to build a better future. I believe we should take a lot of pride in all of the calamities in the marketplace. We are doing a very good job in risk avoidance.

We have navigated very tight procedures in terms of risk mitigation. Our risk management teams under Ben Golub have done a very unbelievable job in terms of helping us minimize our exposures; maximizing our knowledge of where we have exposures and helping us navigate and mitigate any problems in these hostile times.

I believe much of the hostile times in terms of insolvency is behind us. I believe what the national banks have done globally in terms of putting capital into the banking systems of their various nations and two, by guaranteeing their debts for a period of time have really minimized the insolvency risk that we just had very loud in the first, in the month of August and September and certainly in the first part of October.

I believe the credit markets are going to stabilize because we don't have that fear in the bond market of insolvency today and I believe it now, we just got to get back to lending and hopefully the actions of the Federal Reserve today in commercial paper will get us back to lending to corporations on a CP level with the declines of LIBOR, we’ll start to see interbank lending starting to pickup and we’ll see unlocking of the credit markets and through that unlocking of the credit markets despite a recession that we are going to be facing with the equity markets can stabilize too.

So, with that I want to thank all the employees of BlackRock. I know this has been a tough quarter. I’d like to thank all our shareholders. This was a tough quarter for you too. But I can tell you very clearly, we are in a very good position to take advantage of the opportunities that the new global capital markets will give us and we are well positioned to take that position and run with it.

Thank you very much. We'll open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Hojoon Lee of Morgan Stanley.

Hojoon Lee - Morgan Stanley

Good morning.

Laurence Fink

Good morning.

Hojoon Lee - Morgan Stanley

Good morning. I have a question on Quellos and your outlook on hedge funds more broadly. I think the industry had something like $31 billion in outflows in the third quarter? So, that’s 5% annualized rate. Could you give us a sense of how flows were at Quellos maybe in terms of kind of sales and redemption behavior?

Laurence Fink

I don't know if I have it here. We could do that offline. I know, we had some good inflows and we had some outflows. As I told you that, I’ve somebody looking at it that we don’t break it out.

Ann Marie Petach

Yeah. The net…

Laurence Fink

Net.

Ann Marie Petach

Across their product was $65 million.

Laurence Fink

So, we are flat net in the third quarter.

Hojoon Lee - Morgan Stanley

Okay. How does that compared to the first half of the year?

Laurence Fink

First half, we had inflows probably. Hold on, I'll get it.

Ann Marie Petach

Year-to-date, we are positive 13.

Laurence Fink

So, year-to-date, we are positive 13.

Hojoon Lee - Morgan Stanley

Okay. And one question on BlackRock Solutions. I think a quarter ago, you commented around some of the human power or potential capacity issues there given you’re very busy with new mandates. Could you give us a sense of where you stand there and how much growth, do you think, you could support with the current infrastructure?

Laurence Fink

As I said earlier, we’ve had hired a number of people. We’ve added a lot more depth in our solutions space. We’ve more capacity today than we’ve ever had before. That is not to say that we’re not working weekends and weeknights and but we’re in a good position to take on more business.

Hojoon Lee - Morgan Stanley

And you don’t see any slowdown in the momentum you’ve had over the last several quarters there?

Laurence Fink

On the contrary, I think we’ve seen a rapid speedup.

Hojoon Lee - Morgan Stanley

Okay, thanks. And just my last question. With respect to TARP, I mean from the perspective of acquiring assets for your clients could you discuss some of the types of products or opportunities you’re focusing on and maybe help us racket how much business it could potentially generate on the asset management side?

Laurence Fink

Well, I don’t know. First of all, the treasury has not finalized, who were the selected managers hopefully that will be done shortly. Hopefully, BlackRock is one of the participants of the plan. We certainly have submitted many different submissions, RFPs. So, until I know more about it and until we know if we’re one of the selected firms, its very hard for me to describe what it means.

Hojoon Lee - Morgan Stanley

Do you have a sense of timing in terms of when we should be hearing about that?

Laurence Fink

It is my expectation and only mine, I’d say it stays away. I listened to the secretary of the treasury from his public statements, he wants to do things quickly and in our conversations with treasury, I believe it is fair to say they do want to do some things quickly, so it should be days, maybe a week until we'll know as to the game plan of the TARP.

Hojoon Lee - Morgan Stanley

Thanks, Larry.

Operator

Your next question comes from the line of William Katz of Buckingham Research.

Laurence Fink

Hey, Bill.

William Katz - Buckingham Research

Thank you. Hi, good morning everyone. Thanks for the very broad based comments. [Touch on] some questions of that but just a few. Just following up on the TARP, I assume a lot of speculation around the economics of the business. So, I wonder if you could help frame how we should be thinking about the earnings impact from any mandates that you might win?

Laurence Fink

That will be good, if we win. I really don't want to get into it. I don't like talking about businesses that we may or may not win. Clearly, if we do win, I believe, I think it's fair to say that margins are going to be lower for TARP business and other products. I think without getting into too much detail in our submission, which I don't know, I’m not here to suggest we're going to win, but there are submission we did assume that margins are going to be much smaller than other product areas.

But also we did assume that the size that each manager will have to manage will be quite large and so it should turn into a good business. But I think it's appropriate that the managers’ workforce very tight spread in these markets to help the economy unlock itself.

William Katz - Buckingham Research

Does that include any type of performance fees subject to workout?

Laurence Fink

You are assuming they are going to do performance fees and I don’t know and if anyone knows what the type of, how the treasury will design them for the advisory management fees. I don’t think we know that yet, maybe somebody does know and they want and we did it I don’t know maybe we will find out.

William Katz - Buckingham Research

Okay. Second question is on performance fees. Given all your commentary both leading into the quarter and on today’s conference call. Surprise is there any sizeable performance fees maybe just a little description on where these fees came from and then as soon as we look forward apart from just the outflow accelerating a little bit into the new quarter. How should we think about high watermarks and go forward performance fees?

Laurence Fink

Well a good question. Performance fees, and some of performance fees, some of them were struck at end of September and that’s why we had some performance fees going forward in the third quarter. Going forward the high watermark depending on the product, there are going to some areas, some funds where you have a 5% to 7% high watermark hurdle and some of them could be 20% or 30% depending on some of the energy funds. I would imagine, I don’t have it specifically, but I know what has happened in the last few months. So they can be significant.

William Katz - Buckingham Research

Okay and so a last question just sort of follows up on your commentary about consolidation of the money market business. Just sort of wondering given what seems to be almost like becoming utility in financial services globally now based on nationalization of the banks, etcetera.

Laurence Fink

Right.

William Katz - Buckingham Research

You envisioned just broader based consolidation among asset managers and if so would you be thinking about rollups now in addition to any other product specific things going on?

Laurence Fink

I think up until last week, everybody was worried about solvency and stability. I don’t think there was a moment in which anyone was focusing on mergers other than quick defensive ones, but I think as we restabilize our market which I believe will be happening. I believe there are going to be huge opportunities in the investment management business for consolidation.

So, let’s think about this Bill. I mean the set back in equities, with global equities down about 40%, and US equities are down about 33%, small companies are not going to be able to survive this. They are not going to be able to afford be it the credit research or equity research or the risk management, with the idea that we are going to have more regulation and more cost associated with the regulation going forward and I think that’s a certainty within six months of the new year.

I believe there is going to be a great need for consolidation in the investment management business. I believe more than ever before brand name, global platform, multi products are going to be more important than ever. So, boutiques whether they are just a boutique in money markets, boutiques in bonds, boutiques as in equities. I believe it is a going to be a hard model to build a platform.

So, I believe we will have at BlackRock as much opportunity to do consolidation and rollups than we’ve ever had in the past. And I would tell you, we have not, we’ve had more inquiries recently about merger opportunities than we’ve ever had, albeit I would say we have not simply begun any of the conservations, because I think it was inappropriate to focus on those things until we felt more stable. But I do believe once the stability is back in our marketplace a higher degree of confidence in the Executive and Board levels of the various firms, we are going to see huge a consolidation.

William Katz - Buckingham Research

Great, thanks very much Larry.

Operator

Your next question comes from the line of Roger Smith of FPK.

Laurence Fink

Hey Roger.

Roger Smith - Fox-Pitt Kelton

Hey, how are you doing, thanks a lot for taking the question and I guess really what I want to understand this, how flexible really is the expense model on a go forward basis, because it sounds like what you guys really want to do is continue to built-out the business quite a bit and we’ve seen AUMs come down again, so far in the third quarter. So how should we really kind of think about those expenses going forward?

Laurence Fink

Very good question and I think its fair for me to tell you that we are looking at all expenses right now. We are actually looking at our business model. There are going to be areas where we are going to be emphasizing and growing and quite frankly there are some businesses that we are going to downsize and there may be a business that we may get out off.

I mean, there are going to be -- on Thursday, I have my Operating Committee and Executive Committee meetings. We have had many meetings already looking at and addressing all those issues and I believe that's, we have to be in front of all that. We have to be from a top downward looking at areas that we need to grow and we’re going to continue to build-out those areas. And I can think about, in our BlackRock solution space, we got to continue to grow.

Our independent advisory push in the retail space will have to continue to grow. Those areas we had to be foolish not to continue to invest, because of those areas without naming them right now, that we are going to have to reduce and we will and we are looking at all ways of minimizing and reducing our expenses going into the next year. And I think that’s the only appropriate thing to do. I can tell you we are very much in front of it, Roger.

Roger Smith - Fox-Pitt Kelton

Okay, great, thanks and then on the performance fees, I know as Bill just talked about them, a little bit more. Is there any performance fees that we will be trying to relative performance or are there any longer-term performance fees that would have sort of been accumulating over some period of time that we should be thinking about coming into the…

Laurence Fink

We had some long-dated performance fees in real estate up until probably the last six months. We have had some growing NAV but the real estate has fallen too. So, that's more of an absolute, that's relative to the '93 index. So there are a few of them, but most of them are absolute, but some of them are a three year rolling fee. So a three year review how we perform, so some of them are not just in a mark-to-markets they are longer dated in terms of how we are performing and so some of those we may have still growing performances. Ann Marie?

Ann Marie Petach

Yes, just to say in the third quarter really the bulk of our performance fees came from hedge funds out of our EMEA region. And then on a going basis we do get some performance fees on separate accounts that do take in to account on relative performance basis.

Roger Smith - Fox-Pitt Kelton

Okay, great. And then for some of the alternative business where the fund-to-funds business at Quellos, I mean this does seem like there is a lot of discussion in the marketplace about potential outflows and it seems like the high network client base I guess is getting some what nervous and the institutional allocations are kind of moving higher. Like how does that fund-to-funds business at Quellos really prepare itself for redemption levels that might be coming in the fourth quarter?

Laurence Fink

I know you identify as Quellos we call it BAA absolutely, is of course. No different than how we prepare ourselves in money market liquidation, so we talked to our managers who are we're working with. We identify that and we try to stay in front of it, we try to give notifications to our mangers in advance with the idea that we may have excess cash, but you got to stay in front of it. I think this is why we had such a tremendous market decline last part of September and early October, where lot of fund-to-funds and lot of managers were giving access notice in the anticipation of outflows.

So that’s what you are saying. I don't, its just knowing your client, well talking to your clients as to what are their needs, finding out what their expectations are and then going back and managing your cash and liquidity with your managers accordingly. And as you know on the institutional side most of it is 60 plus days notice for redemption. So you have time to plan.

Roger Smith - Fox-Pitt Kelton

Right, fair enough. I guess and then the last question…

Laurence Fink

And that’s reflective in my pipeline when we talked about out outflows. Some of the outflows were there. So as we said earlier in our BAA platform we basically are flat for the quarter and up for the year, but we are forecasting as I said in the entire alternative space about $1.5 billion of outflows. So that’s in our pipeline number.

Roger Smith - Fox-Pitt Kelton

Right, okay fair enough. Then just lastly on the redemptions of the money market [subprime] assets. Where did that money really go, because I would have assumed that you guys could have kept some of that?

Laurence Fink

It went to our government funds and if you are going to ask Jamie Dimon and other banks how much deposits they received and keep in mind bank deposits are guaranteed.

Roger Smith - Fox-Pitt Kelton

Right.

Laurence Fink

And so the giant banks were the biggest beneficiary in this flood outside the money market industry. This was an industry outflow and keep in mind lot of the money that we have managed is for other financial institutions. So they have actually pulled their money back too.

Roger Smith - Fox-Pitt Kelton

Fair enough.

Laurence Fink

So, when you manage portal money, some of the portal money is for other small banks.

Roger Smith - Fox-Pitt Kelton

Right, fair enough.

Laurence Fink

And they are pulling all their liquidity to keep it there too. So, much of it was fear. I do believe the Fed action today is going to cause more stability in the primary funds and it will give the primary funds actually the ability now to invest longer, which in mind will give more opportunities for prime funds, because the yield spread between government funds and prime funds are so enormous, but they were not as enormous because everyone was keeping their money so close to overnight money. With this new [platform] it allows us to extend our maturities and really reap the benefits of the spread in commercial paper versus governments.

Roger Smith - Fox-Pitt Kelton

Great, thanks very much.

Laurence Fink

You’re welcome.

Operator

Your next question comes from the line of Craig Siegenthaler of Credit Suisse.

Laurence Fink

Hi, Craig.

Craig Siegenthaler - Credit Suisse

Hi, good morning. Just a question on counterparty risk and how it really faces the industry, specifically with liability driven investing and also Sec lending. With the dislocation in the lending markets, has the ability for LDI strategies to hedge future liabilities impacted, your investment process at all. And then on Sec lending, I am just wondering if traditional fixed income strategies actually lend out these securities enhance yield and is there any risk of selling these assets at distress prices as leverages brought in here?

Laurence Fink

Well, to answer your last question. I think we've seen so much hedge fund liquidation's and unwinding of leverage platforms is one of the big reasons why we've had such a tremendous decline in some of these asset categories.

In terms of Sec lending, we continue to see, as we said $12 billion were outflows and liquidity was Sec lending. We are on very small player in sec lending. I think our balances today, is about $6 billion in sec lending. It is not a major portion of our business. We are doing it as an adjunct of our equity platform, but it is a very small component of our business and it will remain to be a very small component of our business. It only pays about a basis point in anyway. So, in terms of fees, it’s very de minimis.

And in terms of counterparty risk for LDI, obviously, we pay attention to that, our risk team, our Chief Risk Officer, Ben Golub and team. They spend a lot of time looking in our entire counterparty risk and that is counterparty risk on behalf our clients. So, we look at every swap. We look at everything. We analyze every type of risk we have and there is no question during the last three weeks of September after the bankruptcy of Lehman, the first couple of weeks of October, we were very frightened of some large exposures we had with some institutions that were stumbling and we were doing a lot to mitigate that during that time.

As I said, everybody over the course of this four-week tsunami, many people were spending a lot of time trying to just mitigate risk and manage risk downward instead of trying to look for investment opportunities. We did a great job and navigated that. As I said, we did not have any issues with our money market funds. We did not have any issues with counterparty risk with any of our swap parties and so we actually are well positioned in that and we stayed in front of all those issues.

Craig Siegenthaler - Credit Suisse

And then Larry with your money market business, I know it’s your fee rates were actually or your profitability process, I’ve seen improved over the last year, but when I look at the product, when you are forward with increased regulation, potential premiums to a US government or third-party, possible rating agency regulation maybe even capital charges, because there is for some asset managers there is a embedded capital charge to support these funds, for the fund to have broken apart. But I’m wondering did you see profitability declined all these products going forward?

Laurence Fink

Yes. But regulatory issues are, is a relative for everybody in the world, and I don't think we're going to be adversely harmed. And actually I think we will be on a relative basis, we are going to look much better. I think we are all much better prepared for that. Well, my general counsel says fees are paid by the funds anyway on the insurance.

In terms of capital charges, we are the first to believe, to have reserves for losses in money market funds. We have been finding our auditors, and this is now a public acknowledgement of my auditors, who has done a very fine job, they are listening. So, I could tell him again for the last ten years, we always believed we should have had reserves for money market funds because it is the firm's responsibility, and we don't indeed want to break the dollar.

So, we've been always very much in favor of having some form of capital that is reserved for money market funds. Quite frankly, we were not allowed to ever put a reserve down because BlackRock never had a credit loss up until in our (inaudible) sovereign funds of last year, where we had I think a $35 million charge in our cash strategy fund.

So, I guess definitionally that means it's a higher cost of doing business, if we did reserve something for or capital charges for money market funds, we would welcome it. We believe it's another reason, why you're going to see consolidation. It is another reason, why you need to have large scale assets for liquidity to make the appropriate return. So, all those issues do not fright me. In fact to gives me a greater comfort that we will be one of the leaders.

Craig Siegenthaler - Credit Suisse

Great, thanks for taking my questions.

Operator

Your next question comes from the line of Prashant Bhatia of Citi.

Laurence Fink

Hello, Prashant.

Prashant Bhatia - Citi

Hi. Larry, you talked about the washout you think that's coming on the alternative asset side, I guess one do you have a feel for just the quantity, the amount of AUM that can move out of this space? And I guess two, once the fear subsides, where do you think that AUM actually flows to?

Laurence Fink

I don't. I believe it just to be very hard for small hedge funds to survive. I think it's been hard even for some large hedge funds to survive. I think you are going to have it washed out. I think monoline firms, I know everybody, especially hedge funds were rallying on monoline finance companies, but nobody was rallying on monoline hedge funds and I believe there is going to be a greater need for institutions that have broad based products to survive.

Where the money will go, actually, I think more and more money will go into traditional products, again back into equities. As you saw in the first six months Prashant, the greatest outflows in global equities were in large caps space in the US area. And I do believe they are just massive opportunities in the credit markets. We've never seen the yield spreads like this, and so once there is a stability, the returns, the opportunities you have from corporate credits, this is by five-year bank paper at 9%, and another bank at 8%.

To me the opportunities are quite extraordinary now for those, who are trying to reduce risk in some of the alternative space. To move into more traditional products that we have yields and returns that are something we dreamed about over last 10 years. So, I believe its spells, its going to be a very large opportunity once again for those boring traditional asset managers, but those asset managers that are positioned in the global setting to take advantage of it.

Prashant Bhatia - Citi

Okay. And then based on that the investment portfolio that you have about $1 billion, $1.9 billion as I think, is that a portfolio? Is that the right size based on the environment here, would you consider shrinking that portfolio or can you actually grow it here? What is the right size?

Ann Marie Petach

I think the portfolio size you were talking about is growth of minority. We’d like to think of about it net, you're talking about our co-investments, right?

Prashant Bhatia - Citi

Yes, I'm talking about the $1.9 billion on total.

Ann Marie Petach

Net of minority interest at the end of the second quarter that was about $1.4 billion. And so we tend to think of it net.

Prashant Bhatia - Citi

Okay.

Laurence Fink

Prashant I guess the question you're asking is, we hope we have as much opportunity in the future as we do in the co-invest with our investors and our clients. And so to me that is a, despite the setbacks we had in NAVs in last quarter, to me that is a major component of our engine of growth for the future.

Prashant Bhatia - Citi

Okay.

Laurence Fink

We co-invest whether our investors in these alternative products, especially with the opportunities we have in bank loans, in distressed debt, in preferred stocks, and in bank credit. I mean bank credit today is ridiculously cheap. So, there is just going to be some great opportunities that if our investors are looking for BlackRock to co-investment with him, we will.

Prashant Bhatia - Citi

Okay. On one of those, I think the UBS portfolio that you’re managing. Could you just give us an update on how that’s performing versus plan maybe?

Laurence Fink

According to our forecast of default and delinquencies, we expected a cash flow return in the 18ish percent. The cash flow returns are actually 18.4. And so the default and delinquencies are approximately what we thought, they were and so the cash flows are very strong and so obviously its only five or six months.

However, because of fund is levered, and there has been a decay in the mark-to-market of these assets, its been about, a 30% decay in any of these, those type of products, just because the leverage and they are down, on a mark-to-market, the assets are down about nineish percent.

Prashant Bhatia - Citi

Okay. But if the default continue to track?

Laurence Fink

We’re going to get all the money back, yes.

Prashant Bhatia - Citi

Get it back, right. Okay.

Laurence Fink

Yes. Here is a example of accounting questions. I mean, we have term equity in this and term liability. There is no mismatch.

Prashant Bhatia - Citi

Right

Laurence Fink

And yet we have to mark-to-market. I hope I added as a solution that one too.

Prashant Bhatia - Citi

Okay. And then do you have a view on whether Bank of America will keep the investment in BlackRock or is that too early at this point?

Laurence Fink

Yes, I’ve had numerous conversations with Ken Lewis, the CEO of Bank of America. I think he is very excited about working alongside with BlackRock, but we have not had any conversations yet. I can tell you in the next few weeks, we will begin our conversations with Bank of America, and I’m sure they’re going to be very positive. And as I said our positioning within Bank of America is going to be strong, as you know, with Merrill Lynch on a change of control.

Our global distribution agreement extends by five years to-date of closing. So, we have this very strong position within the Bank of America platform. I think we are well positioned. We're working very closely with the entire Merrill Lynch system and we look forward to working very closely with the entire Bank of America system to help their shareholders and to continue to nurture BlackRock shareholders.

Prashant Bhatia - Citi

Okay. And then just on the investment portfolios, you get called into evaluate a lot of different portfolios across the industry, can you just give some color on -- are that still areas or asset classes that are being mismarked and what types of asset classes there are and?

Laurence Fink

Well, I wouldn't mismarked. Actually in the most recent in terms of appraises we are looking at I’d say people are getting closer and closer to the fair value of marketing than ever before. I think where you're going to have greater, greater, well, let me state it two ways. I think in the certainly in the sub-prime area, you're seeing markets are approximate now, throughout the market.

I think in the areas like the option ARMs. There is a huge disparity between one evaluator and another evaluator. We've seen some people believe in they're worth in the 60s and some people believe they’re worth in the 40s. And so there is still some large disagreements in terms of evaluation of option ARMs.

We are beginning to see more stress and more consumer-like products and HELOC loans, more stress obviously coming from credit cards. So, some of the more visible problems are probably are in the healing process. But I think in some of the more consumer-oriented products, there is probably still more pain to come.

Prashant Bhatia - Citi

Okay. Thanks, Larry.

Operator

Ladies and gentlemen, we have reached the allotted time for questions. I will now turn the conference back over to Mr. Fink for any closing remarks.

Laurence Fink

Once again thank you every one. This is a long conference call. Obviously, as I said, this is the best of times and worst of times. You know, it doesn't feel good to see NAV erosions that we've seen. It doesn't feel good to see the outflows in liquidity, but nevertheless, I actually believe the entire BlackRock platform was very severely tested and we won.

It doesn't feel like a big win today, but I do believe the organization, all our employees, have done a great job in mitigating problems, have done a very good job in handholding our clients, who are ultimate, that is the life blood of our future, handholding our clients. And I believe we are positioned to build stronger relationship with our clients globally. Thank you everyone. I will talk to you in another quarter. Bye, bye.

Operator

This concludes today’s conference call. You may now disconnect.

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