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BlackRock, Inc.

BlackRock, Inc.

40 East 52nd Street
New York, New York 10022
U.S.A.
Telephone: (212) 810-5300
Fax: (212) 935-1370
Web site: http://www.blackrock.com

Public Company
Incorporated:
1998 as BlackRock, Inc.
Employees: 1,560
Total Assets: $1.84 billion (2005)
Stock Exchanges: New York
Ticker Symbol: BLK
NAIC: 523920 Portfolio Management; 523930 Investment Advice

BlackRock, Inc. is a leading investment management firm. Disciplined risk management is its trademark; in fact the firm markets its methods to others under the BlackRock Solutions brand. BlackRock had $452.7 billion in assets under management at the end of 2005; this would grow to a staggering $1 trillion upon successful completion of its merger with the investment management business Merrill Lynch, due by the end of 2006. BlackRock is indirectly controlled by Pittsburgh bank the PNC Financial Services Group, Inc. In addition to its New York base, the firm has offices in 14 cities in the United States, Europe, and the Pacific Rim. While BlackRock made its reputation on fixed income products, i.e. bonds, it has steadily developed an array of other investment capabilities.

ORIGINS IN MORTGAGE-BACKED SECURITIES

BlackRock's origins can be traced to 1988, when Blackstone Financial Management LP was formed by Laurence D. (Larry) Fink and a group of seven colleagues. A native of Los Angeles, Fink had earned an M.B.A. at UCLA before starting his Wall Street career at First Boston. There, according to Fortune, he turned a little-known mortgage-backed securities trade into a booming sideline for the bank's mortgage department. After weathering up cycles and down, Fink decided to become a buyer, rather than a seller, of bonds.

Fink then became a partner in the Blackstone Group, a New York investment firm. While the others in the group focused on leveraged buyouts, Fink offered clients such as pension funds customized portfolios of bonds based on the desired amount of risk. The asset management business would become known as Blackstone Financial Management.

Blackstone's first offering, reported American Banker, was a $100 million fund devoted largely to mortgage-backed securities. It was launched in 1988. An equity fund followed the next year. The firm preferred to invest in large, fiscally sound companies in growth industries.

Disciplined risk management, including computerized analysis, has always been a trademark of the firm, said Fortune. According to Pensions & Investments, the firm had started out with just one computer.

It began making its risk management expertise available to others in 1994, noted Global Investor, beginning with an analysis of Kidder Peabody's $10 billion collateralized mortgage obligation (CMO) portfolio that was being liquidated. This risk management business was branded as BlackRock Solutions in 2000. By 2004, the consulting business had annual revenues of $80 million.

By 1991, according to Fortune, Blackstone was managing $9 billion in assets for Chrysler, General Electric, and others. Blackstone Financial Management LP was renamed BlackRock Financial Management LP in July 1992. Its holding company, BFM Holdings Inc., filed for an initial public offering, but this would be deferred for a couple of years.

ACQUIRED BY PNC IN 1995

The PNC Financial Services Group, Inc., the Pittsburgh-based banking empire, acquired BlackRock Financial Management for $240 million in 1994. At the time, BlackRock's assets under management had blossomed to $23 billion, and it was just the beginning of a steep climb. They would increase more than sixfold in five years. After the takeover, PNC provided a special bonus pool to persuade fund managers to stay on the team. In 2001, when their contracts expired, PNC offered another $200 million as incentives, provided BlackRock maintained a 15 percent or better annual growth rate.

BlackRock added hedge funds to its products in 1996. Within three years of being acquired by PNC, BlackRock's assets doubled to about $46 billion, noted Pensions & Investments in 1997. According to Crain's New York Business, the affiliation with parent PNC gave BlackRock a source of retail customers to supplement its institutional investor client base, which in the late 1990s still accounted for about 80 percent of its assets under management.

BlackRock was reorganized as a corporation in February 1998. PNC granted its 22 partners 20 percent of its equity. PNC's own $108 billion asset management unit was merged into BlackRock later in the year.

1999 IPO

PNC sold 14 percent of BlackRock Inc.'s common stock to the public in an October 1, 1999 initial public offering (IPO). Priced at $14 a share, the IPO raised $126 million. Fink and other partners owned another 16 percent, leaving PNC with a 70 percent interest. At the time, BlackRock, valued at $895 million, was estimated to be the country's fifth largest publicly traded asset management firm. It then had 650 employees.

BlackRock planned to use the capital to be a leading consolidator in the crowded investment management field, while paying down debts related to the 1994 acquisition by PNC. Equities firms would be a particular area of interest for at least several years.

The tech stock speculation of the time largely escaped BlackRock, which was primarily focused on bonds, which were barely yielding 6 percent at the time. While its funds did not boast the stellar returns of the high-flying NASDAQ, after the bust its conservative management seemed inspired and, most importantly, safe. BlackRock steadily continued to grow into a monolith on Wall Street. The firm ended 2000 with $204 billion in assets under management. Revenue was $477 million.

Boston-based hedge fund manager Cylennius Capital Management was acquired in September 2002. It had $100 million in assets under management for institutions and high-net-worth individuals.

COMPANY PERSPECTIVES

BlackRock's mission is to be a world-class provider of global investment management, risk management, and advisory services. We offer a broad range of investment products that target returns in excess of their benchmarks while efficiently managing risk. Our risk management products and services are developed from the same proprietary systems and analytics that support our own asset management business. We bring to asset management a practical, real world application of risk management techniques and analytics designed to maximize usability, consistency, efficiency, and flexibility.

BlackRock is committed to building long-term relationships by providing superior performance, excellent client service, and customized products and services to meet individual client needs. We continually and carefully evaluate new products and disciplines based upon market opportunities, investor needs, and their strategic fit with BlackRock's existing organization.

A few months later, in April 2003, BlackRock agreed to buy a majority interest in HPB Management LLC, a fund-of-hedge-funds company founded by veteran manager Howard P. Berkowitz, who went on to lead BlackRock's fund-of-hedge-funds business. HPB then had $150 million in assets. BlackRock, which had built its reputation on bonds, sought to offer more alternative investment products, a company source told American Banker. Institutional clients were looking for more potential for higher returns.

At the end of 2004, BlackRock was managing assets of $342 billion, up ten percent from the previous year. Most were managed in separate accounts, although the firm did have 27 percent in mutual funds such as BlackRock Funds and BlackRock Liquidity Funds. BlackRock ranked among the top 25 investment management companies in the world. By this time, its share price had more than quintupled to around $75.

In January 2005, BlackRock acquired MetLife, Inc.'s SSRM Holdings, Inc. in a deal worth $375 million ($325 million stock, $50 million of BlackRock common stock). SSRM had about $50 billion in assets under management through subsidiaries State Street Research & Management Company and SSR Realty Advisors.

Business Week chronicled the firm's attempts to build a reputation for stock funds as well as bonds, which were susceptible to losing value as interest rates increased. The SSRM acquisition was part of the plan; SSRM brought with it $17.6 billion in mutual funds. Fink was also manning existing funds with managers hired away from rivals. Even so, stocks accounted for less than 10 percent of BlackRock's assets. BlackRock ended 2005 managing assets of $452.7 billion. BlackRock was also aiming to increase its geographic diversity. In 2004, it added offices in Sydney and Singapore; London and Munich followed the next year.

MLIM MERGER PENDING IN 2006

In early 2006, Merrill Lynch was combining its asset management business, Merrill Lynch Investment Managers (MLIM), with BlackRock in exchange for a 49.5 percent holding in BlackRock valued at $6.8 billion. The merger, if completed successfully, would make not only a $1 trillion giant, second only to Fidelity in mutual funds, but would also bring BlackRock a long desired strengthening of its equities side. The merger was scheduled to close in the third quarter of 2006.

PRINCIPAL SUBSIDIARIES

BlackRock Advisors, Inc.; BlackRock Financial Management, Inc.; BlackRock Institutional Management Corporation; State Street Research & Management Company; SSRM Holdings, Inc.

PRINCIPAL COMPETITORS

Western Asset Management Company; Pimco Advisors Holdings.

KEY DATES

1988:
Blackstone Financial Management is formed at First Boston Corp.
1992:
Blackstone Financial Management changes name to BlackRock Financial Management.
1994:
BlackRock begins providing risk management systems to third parties.
1995:
The PNC Financial Services Group, Inc. acquires BlackRock Financial Management.
1998:
Partnership is reorganized as a corporation.
1999:
PNC offers 30 percent of BlackRock shares to the public.
2005:
BlackRock buys State Street Research & Management (SSRM) from MetLife, Inc.
2006:
BlackRock and Merrill Lynch Investment Managers (MLIM) agree to merge to create $1 trillion giant.

FURTHER READING

Ackerman, Matt, "BlackRock Bets on Alternative Products' Lure," American Banker, May 30, 2003, p. 10.

Appell, Douglas, "Money Management: BlackRock Seeks Incremental, Not Earth-Shattering, Changes," Pensions & Investments, May 2, 2005, p. 3.

, "Pink Slips: BlackRock Slashes SSRM's Staff; 2 Chief Investment Officers Among 31% of Employees Let Go; CEO Davis Staying," Pensions & Investments, December 13, 2004, p. 1.

"BFM Holdings Files Initial Share Offer," Reuters News, May 20, 1992.

"BlackRock's Solution," Global Investor, November 2002, p. 22.

Boorstin, Julia, "The Hidden Beauty of Bonds: While You Were Watching the Stock Market, a Little-Known Bond House Called BlackRock Grew into One of the Biggest Players on Wall Street," Fortune, March 19, 2001, pp. 118+.

Burke, Kevin, "What the BlackRock/Merrill Deal Means to Advisors," Registered Rep (Online Exclusive), February 15, 2006.

Calio, Vince, " 'A Little More Scale': BlackRock Deal for SSRM Motivated by Mutual Funds," Pensions & Investments, September 6, 2004, p. 1.

Cardona, Mercedes M., "BlackRock Prospers with PNC As Owner," Pensions & Investments, June 9, 1997, p. 34.

Crawford, Gregory, "BlackRock's Solution; The Firm, Which Started Developing a Risk Management System from Its 1988 Inception, Offers a Broad Package," Pensions & Investments, July 11, 2005, p. 18.

Elstein, Aaron, "BlackRock Prospers amid Gloom; Unblemished by Scandal, Bond Firm Quietly Expands into Stock News," Crain's New York Business, October 18, 2004, p. 3.

Fraser, Katharine, "Offering by PNC's BlackRock Seen As Recipe for Growth," American Banker, May 17, 1999, p. 10.

Guerra, Anthony, "How BlackRock Stays Solid: BlackRock Vice Chairman Rob Kapito Describes How His Firm Stays on Top of the Fixed-Income World by Keeping Its Technology Architecture Simple," Wall Street & Technology, January 2004, p. 43.

Isidore, Chris, "In Shaky Market, BlackRock Looks for Risk-Averse Investors: Asset Manager Shifts Focus to Retail Clients; Looks to New Owner As Customer Source," Crain's New York Business, October 19, 1998, p. 16.

Keefe, John, "Steady As a Rock," Global Investor, December 2004, pp. 16+.

Marcial, Gene G., "BlackRock's Sale Will Line PNC's Pockets," Business Week, February 27, 2006, p. 96.

Mazzucca, Tim, "MS-BlackRock Deal Talk Stirs Worries About PNC," American Banker, January 30, 2006, p. 20.

"Merrill Lynch/BlackRock," Financial Times (London), February 16, 2006, p. 18.

Pressman, Aaron, "BlackRock Breaks Out of Its Bonds; Larry Fink Is Trying to Reduce Dependence on Fixed Income, But the Road Is Rocky," Business Week, July 4, 2005, p. 85.

Ring, Niamh, "PNC's Investment Chief Says Cultures Can Meld," American Banker, February 11, 1998, pp. 1+.

Serwer, Andy, "A Wall Street Star Hits the Even Bigger Time," Fortune, March 6, 2006, p. 37.

Stern, Gabriella, and Robert McGough, "PNC Agrees to Acquisition of BlackRock," Wall Street Journal, p. A4.

Talley, Karen, "BlackRock, Armed with Capital, Eyes Growth," American Banker, November 17, 1999, p. 8.

Tascarella, Patty, "Big Days at BlackRock: Andrew Damm Looks for Very Large and Very Healthy Companies with Above-Average Earnings Growth," Pittsburgh Business Times, October 2, 1998, p. 6.

, "Future IPOs May Look to BlackRock," Pittsburgh Business Times, May 21, 1999, pp. 3+.

"TEAM, TEAM, TEAM," Pensions & Investments, January 7, 2002, p. 12.

Wallace, Evelyn, "Blackstone's First Offering Is Mortgage-Backed Fund," American Banker, June 28, 1988, p. 32.

Winokur, Cheryl, "Investment Unit of PNC Raises $126M in IPO," American Banker, October 4, 1999, p. 1.

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