Edgar Filing: BlackRock Inc.

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934.

For the transition period from to .

Commission file number 001-33099

LOGO

BlackRock, Inc.

(Exact name of registrant as specified in its charter)

Delaware

32-0174431

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer Identification No.)

55 East 52nd Street, New York, NY 10055

(Address of Principal Executive Offices)

(Zip Code)

(212) 810-5300

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes		X		No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


Yes		X		No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or, a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer X	Accelerated filer	Non-accelerated filer
Smaller reporting company		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes		No			X

As of October 31, 2013, there were 167,090,120 shares of the registrant’s common stock outstanding.

BlackRock, Inc.

Index to Form 10-Q

PART I

FINANCIAL INFORMATION


		Page

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Financial Condition		1

	Condensed Consolidated Statements of Income		2

	Condensed Consolidated Statements of Comprehensive Income		3

	Condensed Consolidated Statements of Changes in Equity		4

	Condensed Consolidated Statements of Cash Flows		6

	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		43

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		80

Item 4.	Controls and Procedures		83

PART II

OTHER INFORMATION



Item 1.	Legal Proceedings	84

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	84

Item 6.	Exhibits	85

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

BlackRock, Inc.

Condensed Consolidated Statements of Financial Condition

(in millions, except share data)

(unaudited)


	September 30, 2013			December 31, 2012
Assets
Cash and cash equivalents		$ 3,987			$ 4,606
Accounts receivable		4,311			2,250
Investments		1,878			1,750
Assets of consolidated variable interest entities:
Cash and cash equivalents		93			297
Bank loans, other investments and other assets		2,107			2,264
Separate account assets		146,646			134,768
Separate account collateral held under securities lending agreements		21,962			23,021
Property and equipment (net of accumulated depreciation of $649 and $572 at September 30, 2013 and December 31, 2012, respectively)		523			557
Intangible assets (net of accumulated amortization of $1,019 and $899 at September 30, 2013 and December 31, 2012, respectively)		17,513			17,402
Goodwill		12,938			12,910
Other assets		759			626

Total assets		$212,717			$200,451

Liabilities
Accrued compensation and benefits		$ 1,322			$ 1,547
Accounts payable and accrued liabilities		3,322			1,055
Short-term borrowings		-			100
Liabilities of consolidated variable interest entities:
Borrowings		2,068			2,402
Other liabilities		88			103
Long-term borrowings		4,938			5,687
Separate account liabilities		146,646			134,768
Separate account collateral liabilities under securities lending agreements		21,962			23,021
Deferred income tax liabilities		5,237			5,293
Other liabilities		948			858

Total liabilities		186,531			174,834


Commitments and contingencies (Note 12)
Temporary equity
Redeemable noncontrolling interests		41			32
Permanent Equity
BlackRock, Inc. stockholders’ equity
Common stock, $0.01 par value;		2			2
Shares authorized: 500,000,000 at September 30, 2013 and December 31, 2012;
Shares issued: 171,252,185 at September 30, 2013 and December 31, 2012;
Shares outstanding: 167,277,854 and 168,875,304 at September 30, 2013 and December 31, 2012, respectively
Preferred stock (Note 16)		-			-
Additional paid-in capital		19,391			19,419
Retained earnings		7,653			6,444
Appropriated retained earnings		25			29
Accumulated other comprehensive loss		(79	)		(59	)
Treasury stock, common, at cost (3,974,331 and 2,376,881 shares held at September 30, 2013 and December 31, 2012, respectively)		(993	)		(432	)

Total BlackRock, Inc. stockholders’ equity		25,999			25,403
Nonredeemable noncontrolling interests		127			155
Nonredeemable noncontrolling interests of consolidated variable interest entities		19			27

Total permanent equity		26,145			25,585

Total liabilities, temporary equity and permanent equity		$212,717			$200,451

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Income

(in millions, except share data)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenue
Investment advisory, administration fees and securities lending revenue
Related parties		$1,478			$1,319			$4,403			$3,900
Other third parties		675			705			2,056			2,091

Total investment advisory, administration fees and securities lending revenue		2,153			2,024			6,459			5,991
Investment advisory performance fees		96			103			293			224
BlackRock Solutions and advisory		156			128			420			382
Distribution fees		19			19			54			58
Other revenue		48			46			177			143

Total revenue		2,472			2,320			7,403			6,798
Expenses
Employee compensation and benefits		866			828			2,635			2,439
Distribution and servicing costs		85			94			266			282
Amortization of deferred sales commissions		14			13			38			43
Direct fund expenses		167			144			490			440
General and administration		334			327			1,130			958
Amortization of intangible assets		40			39			120			117

Total expenses		1,506			1,445			4,679			4,279

Operating income		966			875			2,724			2,519
Nonoperating income (expense)
Net gain (loss) on investments		32			75			235			143
Net gain (loss) on consolidated variable interest entities		(6	)		2			(2	)		1
Interest and dividend income		8			10			18			27
Interest expense		(52	)		(57	)		(159	)		(158	)

Total nonoperating income (expense)		(18	)		30			92			13

Income before income taxes		948			905			2,816			2,532
Income tax expense		219			250			715			742

Net income		729			655			2,101			1,790
Less:
Net income (loss) attributable to redeemable noncontrolling interests		-			3			(1	)		7
Net income (loss) attributable to nonredeemable noncontrolling interests		(1	)		10			11			15

Net income attributable to BlackRock, Inc.		$730			$642			$2,091			$1,768

Earnings per share attributable to BlackRock, Inc. common stockholders:
Basic		$4.30			$3.72			$12.26			$10.02
Diluted		$4.21			$3.65			$12.02			$9.87
Cash dividends declared and paid per share		$1.68			$1.50			$5.04			$4.50
Weighted-average common shares outstanding:
Basic		169,811,633			172,359,141			170,581,930			176,116,975
Diluted		173,371,508			175,450,532			174,012,876			178,956,699

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Comprehensive Income

(in millions)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income		$729			$655			$2,101			$1,790
Other comprehensive income (loss):
Change in net unrealized gains (losses) from available-for-sale investments, net of tax:
Unrealized holding gains (losses), net of tax⁽¹⁾		2			10			3			12
Less: reclassification adjustment included in net income⁽²⁾		1			(4	)		10			(5	)

Net change from available-for-sale investments, net of tax		1			14			(7	)		17
Benefit plans, net of tax⁽³⁾		-			-			-			(1	)
Foreign currency translation adjustments		118			54			(13	)		53

Other comprehensive income (loss)		119			68			(20	)		69

Comprehensive income		848			723			2,081			1,859
Less: Comprehensive income (loss) attributable to noncontrolling interests		(1	)		13			10			22

Comprehensive income attributable to BlackRock, Inc.		$849			$710			$2,071			$1,837

⁽¹⁾	The tax benefit (expense) was not material for the three and nine months ended September 30, 2013. The tax benefit (expense) was ($7) million for the three months ended September 30, 2012 and ($8) million for the nine months ended September 30, 2012.

⁽²⁾	The tax benefit (expense) was not material for the three and nine months ended September 30, 2013 and 2012.

⁽³⁾	The tax benefit (expense) for the nine months ended September 30, 2012 was not material.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(in millions)

(unaudited)


	Additional Paid-in Capital ⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock Common		Total BlackRock Stockholders’ Equity		Nonredeemable Noncontrolling Interests		Nonredeemable Noncontrolling Interests of Consolidated VIEs		Total Permanent Equity		Redeemable Noncontrolling Interests / Temporary Equity
December 31, 2012		$19,421		$6,444		$29		($59)		($432)		$25,403		$155		$27		$25,585		$32
Net income		-		2,091		-		-		-		2,091		13		(2)		2,102		(1)
Allocation of gains (losses) of consolidated collateralized loan obligations		-		-		(4)		-		-		(4)		-		4		-		-
Dividends paid		-		(882)		-		-		-		(882)		-		-		(882)		-
Stock-based compensation		339		-		-		-		1		340		-		-		340		-
Issuance of common shares related to employee stock transactions		(402)		-		-		-		422		20		-		-		20		-
Employee tax benefit withholdings related to employee stock transactions		-		-		-		-		(234)		(234)		-		-		(234)		-
Shares repurchased		-		-		-		-		(750)		(750)		-		-		(750)		-
Net tax benefit (shortfall) from stock-based compensation		35		-		-		-		-		35		-		-		35		-
Subscriptions (redemptions/distributions)-noncontrolling interest holders		-		-		-		-		-		-		(41)		124		83		104
Net consolidations (deconsolidations) of sponsored investment funds		-		-		-		-		-		-		-		(134)		(134)		(94)
Other comprehensive income (loss)		-		-		-		(20)		-		(20)		-		-		(20)		-

September 30, 2013		$19,393		$7,653		$25		($79)		($993)		$25,999		$127		$19		$26,145		$41

⁽¹⁾	Amounts include $2 million of common stock at both September 30, 2013 and December 31, 2012.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Changes in Equity

(in millions)

(unaudited)


	Additional Paid-in Capital ⁽¹⁾		Retained Earnings		Appropriated Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Shares Held in Escrow		Treasury Stock Common		Total BlackRock Stockholders’ Equity		Nonredeemable Noncontrolling Interests		Nonredeemable Noncontrolling Interests of Consolidated VIEs		Total Permanent Equity		Redeemable Non- controlling Interests / Temporary Equity ⁽²⁾
December 31, 2011		$20,276		$5,046		$72		($127)		($1)		($218)		$25,048		$184		$38		$25,270		$92
Net income		-		1,768		-		-		-		-		1,768		14		1		1,783		7
Consolidation of a collateralized loan obligation ⁽³⁾		-		-		(13)		-		-		-		(13)		-		-		(13)		-
Allocation of losses of consolidated collateralized loan obligations		-		-		(3)		-		-		-		(3)		-		3		-		-
Dividends paid		-		(804)		-		-		-		-		(804)		-		-		(804)		-
Stock-based compensation		344		-		-		-		-		-		344		-		-		344		-
Merrill Lynch cash capital contribution		7		-		-		-		-		-		7		-		-		7		-
Issuance of common shares related to employee stock transactions		(366)		-		-		-		-		419		53		-		-		53		-
Employee tax benefit withholdings related to employee stock transactions		-		-		-		-		-		(141)		(141)		-		-		(141)		-
Shares repurchased		(1,000)		-		-		-		-		(334)		(1,334)		-		-		(1,334)		-
Net tax benefit (shortfall) from stock-based compensation		63		-		-		-		-		-		63		-		-		63		-
Subscriptions (redemptions/distributions)-noncontrolling interest holders		-		-		-		-		-		-		-		(20)		(8)		(28)		221
Net consolidations (deconsolidations) of sponsored investment funds		-		-		-		-		-		-		-		(8)		-		(8)		(272)
Other comprehensive income (loss)		-		-		-		69		-		-		69		-		-		69		-

September 30, 2012		$19,324		$6,010		$56		($58)		($1)		($274)		$25,057		$170		$34		$25,261		$48

⁽¹⁾	Amounts include $2 million and $1 million of common stock at September 30, 2012 and December 31, 2011, respectively.

⁽²⁾	Amount at September 30, 2012 includes $20 million related to variable interest entities.

⁽³⁾	Consolidated during the three months ended September 30, 2012.

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)


	Nine Months Ended September 30,
	2013			2012
Cash flows from operating activities
Net income		$2,101			$1,790
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		215			219
Amortization of deferred sales commissions		38			43
Stock-based compensation		340			344
Deferred income tax expense (benefit)		(44	)		(42	)
Gain related to PennyMac initial public offering		(39	)		-
Gain related to the charitable contribution		(80	)		-
Charitable contribution		124			-
Net (gains) losses on nontrading investments		(46	)		(32	)
Purchases of investments within consolidated sponsored investment funds		(45	)		(83	)
Proceeds from sales and maturities of investments within consolidated sponsored investment funds		112			48
Assets and liabilities of consolidated VIEs:
Change in cash and cash equivalents		204			(32	)
Net (gains) losses within consolidated VIEs		2			(1	)
Net (purchases) proceeds within consolidated VIEs		15			233
(Earnings) losses from equity method investees		(110	)		(124	)
Distributions of earnings from equity method investees		39			29
Changes in operating assets and liabilities:
Accounts receivable		(2,061	)		(493	)
Deferred sales commissions		(42	)		(31	)
Investments, trading		(205	)		(197	)
Other assets		(97	)		(173	)
Accrued compensation and benefits		(225	)		(199	)
Accounts payable and accrued liabilities		2,264			489
Other liabilities		16			98

Cash flows from operating activities		2,476			1,886

Cash flows from investing activities
Purchases of investments		(188	)		(397	)
Proceeds from sales and maturities of investments		225			391
Distributions of capital from equity method investees		51			51
Net consolidations (deconsolidations) of sponsored investment funds		(63	)		(208	)
Acquisitions, net of cash acquired		(240	)		(267	)
Purchases of property and equipment		(60	)		(121	)

Cash flows from investing activities		(275	)		(551	)

Cash flows from financing activities
Repayments of short-term borrowings		(100	)		-
Repayments of long-term borrowings		(750	)		-
Proceeds from long-term borrowings		-			1,495
Cash dividends paid		(882	)		(804	)
Proceeds from stock options exercised		15			47
Proceeds from issuance of common stock		5			6
Repurchases of common stock		(984	)		(1,475	)
Merrill Lynch cash capital contribution		-			7
Net proceeds from (repayments of) borrowings by consolidated VIEs		(343	)		(203	)
Net (redemptions/distributions paid) subscriptions received from noncontrolling interests holders		187			193
Excess tax benefit from stock-based compensation		40			73

Cash flows from financing activities		(2,812	)		(661	)

Effect of exchange rate changes on cash and cash equivalents		(8	)		43

Net increase (decrease) in cash and cash equivalents		(619	)		717
Cash and cash equivalents, beginning of period		4,606			3,506

Cash and cash equivalents, end of period		$3,987			$4,223

Supplemental disclosure of cash flow information:
Cash paid for:
Interest		$125			$116
Interest on borrowings of consolidated VIEs		$82			$52
Income taxes		$746			$837
Supplemental schedule of noncash investing and financing transactions:
Issuance of common stock		$402			$366
Increase (decrease) in noncontrolling interests due to net consolidation (deconsolidation) of sponsored investment funds		($228	)		($280	)
Increase (decrease) in borrowings due to consolidation of VIEs		$-			$406

See accompanying notes to condensed consolidated financial statements.

BlackRock, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Business Overview

BlackRock, Inc. (together, with its subsidiaries, unless the context otherwise indicates, “BlackRock” or the “Company”) provides diversified investment management services to institutional clients, intermediary and individual investors through various investment vehicles. Investment management services primarily consist of the management of equity, fixed income, multi-asset, alternative investment and cash management products. BlackRock offers investment products in a variety of vehicles, including open-end and closed-end mutual funds, iShares^® exchange-traded funds (“ETFs”), collective investment trusts and separate accounts. In addition, BlackRock provides market risk management, financial markets advisory and enterprise investment system services to a broad base of clients. Financial markets advisory services include valuation services relating to illiquid securities, dispositions and workout assignments (including long-term portfolio liquidation assignments), risk management and strategic planning and execution.

At September 30, 2013, The PNC Financial Services Group, Inc. (“PNC”) held 20.9% of the Company’s voting common stock and 21.9% of the Company’s capital stock, which includes outstanding common and nonvoting preferred stock.

2. Significant Accounting Policies

Basis of Presentation. These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include the accounts of the Company and its controlled subsidiaries. Noncontrolling interests on the condensed consolidated statements of financial condition include the portion of consolidated sponsored investment funds in which the Company does not have direct equity ownership. Significant accounts and transactions between consolidated entities have been eliminated.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Certain financial information that normally is included in annual financial statements, including certain financial statement footnotes, is not required for interim reporting purposes and has been condensed or omitted herein. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, which was filed with the Securities and Exchange Commission (“SEC”) on March 1, 2013 (“2012 Form 10-K”).

The interim financial information at September 30, 2013 and for the three and nine months ended September 30, 2013 and 2012 is unaudited. However, in the opinion of management, the interim information includes all normal recurring adjustments necessary for the fair presentation of the Company’s results for the periods presented. The results of operations for interim periods are not indicative of results to be expected for the full year.

2. Significant Accounting Policies (continued)

Fair Value Measurements.

Hierarchy of Fair Value Inputs. The provisions of Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements and Disclosures (“ASC 820-10”), establish a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and require companies to disclose the fair value of their financial instruments according to the fair value hierarchy (i.e., Level 1, 2 and 3 inputs, as defined). The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

Assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 Inputs:

Quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.

•

Level 1 assets may include listed mutual funds (including those accounted for under the equity method of accounting as these mutual funds are investment companies that have publicly available net asset values (“NAVs”), which in accordance with GAAP, are calculated under fair value measures and the changes in fair values are equal to the earnings of such funds), ETFs, listed equities and certain exchange-traded derivatives.

Level 2 Inputs:

Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; quotes from pricing services or brokers for which the Company can determine that orderly transactions took place at the quoted price or that the inputs used to arrive at the price are observable; and inputs other than quoted prices that are observable, such as models or other valuation methodologies. As a practical expedient, the Company relies on the NAV (or its equivalent) of certain investments as their fair value.

•

Level 2 assets may include debt securities, bank loans, short-term floating-rate notes and asset-backed securities, securities held within consolidated hedge funds, certain equity method limited partnership interests in hedge funds valued based on NAV (or its equivalent) where the Company has the ability to redeem at the measurement date or within the near term without redemption restrictions, restricted public securities valued at a discount, as well as over-the-counter derivatives, including interest and inflation rate swaps and foreign currency exchange contracts that have inputs to the valuations that generally can be corroborated by observable market data.

Level 3 Inputs:

Unobservable inputs for the valuation of the asset or liability, which may include nonbinding broker quotes. Level 3 assets include investments for which there is little, if any, market activity. These inputs require significant management judgment or estimation. Certain investments that are valued using a NAV (or its equivalent) and are subject to current redemption restrictions that will not be lifted in the near term are included in Level 3.

•

Level 3 assets may include general and limited partnership interests in private equity funds, funds of private equity funds, real estate funds, hedge funds and funds of hedge funds, direct private equity investments held within consolidated funds, bank loans and bonds.

2. Significant Accounting Policies (continued)

Fair Value Measurements (continued)

•

Level 3 liabilities include borrowings of consolidated collateralized loan obligations (“CLOs”) valued based upon nonbinding single-broker quotes.

•

Level 3 inputs include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices.

Significance of Inputs. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

Valuation Techniques. The fair values of certain Level 3 assets and liabilities were determined using various methodologies as appropriate, including NAVs of underlying investments, third-party pricing vendors, broker quotes and market and income approaches. Such quotes and modeled prices are evaluated for reasonableness through various procedures, including due diligence reviews of third-party pricing vendors, variance analyses, consideration of the current market environment and other analytical procedures.

As a practical expedient, the Company relies on NAV as the fair value for certain investments. The inputs to value these investments may include BlackRock capital accounts for its partnership interests in various alternative investments, including distressed credit hedge funds, real estate and private equity funds, which may be adjusted by using the returns of certain market indices. The various partnerships are investment companies, which record their underlying investments at fair value based on fair value policies established by management of the underlying fund. Fair value policies at the underlying fund generally require the fund to utilize pricing/valuation information from third-party sources including independent appraisals. However, in some instances, current valuation information for illiquid securities or securities in markets that are not active may not be available from any third-party source or fund management may conclude that the valuations that are available from third-party sources are not reliable. In these instances, fund management may perform model-based analytical valuations that may be used as an input to value these investments.

A significant amount of inputs used to value equity, debt securities and bank loans is sourced from well-recognized third-party pricing vendors. Generally, prices obtained from pricing vendors are categorized as Level 1 inputs for identical securities traded in active markets and as Level 2 for other similar securities if the vendor uses observable inputs in determining the price. Annually, BlackRock’s internal valuation committee or other designated groups review both the valuation methodologies, including the general assumptions and methods used to value various asset classes, and operational processes with these vendors. In addition, on a quarterly basis, meetings are held with the vendors to identify any significant changes to the vendors’ processes.

In addition, quotes obtained from brokers generally are nonbinding and categorized as Level 3 inputs. However, if the Company is able to determine that market participants have transacted for the asset in an orderly manner near the quoted price or if the Company can determine that the inputs used by the broker are observable, the quote is classified as a Level 2 input.

2. Significant Accounting Policies (continued)

Fair Value Measurements (continued)

Fair Value Option. ASC 825-10, Financial Instruments (“ASC 825-10”), provides a fair value option election that allows companies an irrevocable election to use fair value as the initial and subsequent accounting measurement attribute for certain financial assets and liabilities. ASC 825-10 permits entities to elect to measure eligible financial assets and liabilities at fair value on an ongoing basis. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. The decision to elect the fair value option is determined on an instrument-by-instrument basis, which must be applied to an entire instrument, and not only specified risks, specific cash flows, or portions of that instrument, and is irrevocable once elected. Assets and liabilities measured at fair value pursuant to ASC 825-10 are required to be reported separately from those instruments measured using another accounting method.

Derivative Instruments and Hedging Activities. ASC 815-10, Derivatives and Hedging (“ASC 815-10”), establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts and for hedging activities. ASC 815-10 generally requires an entity to recognize all derivatives as either assets or liabilities on the condensed consolidated statements of financial condition and to measure those investments at fair value.

The Company does not use derivative financial instruments for trading or speculative purposes. The Company uses derivative financial instruments primarily for purposes of hedging: (i) exposures to fluctuations in foreign currency exchange rates of certain assets and liabilities, (ii) market exposures for certain seed investments and (iii) future cash flows on floating-rate notes. The Company may also use derivatives within its separate account assets, which are segregated funds held for purposes of funding individual and group pension contracts. In addition, certain consolidated sponsored investment funds may also invest in derivatives as a part of their investment strategy.

Changes in the fair value of the Company’s derivative financial instruments are generally recognized in earnings and, where applicable, are offset by the corresponding gain or loss on the related foreign-denominated assets or liabilities or hedged investments, on the condensed consolidated statements of income.

Separate Account Assets and Liabilities. Separate account assets are maintained by BlackRock Life Limited, a wholly owned subsidiary of the Company, which is a registered life insurance company in the United Kingdom, and represent segregated assets held for purposes of funding individual and group pension contracts. The life insurance company does not underwrite any insurance contracts that involve any insurance risk transfer from the insured to the life insurance company. The separate account assets primarily include equity, debt securities, money market funds and derivatives. The separate account assets are not subject to general claims of the creditors of BlackRock. These separate account assets and the related equal and offsetting liabilities are recorded as separate account assets and separate account liabilities on the condensed consolidated statements of financial condition in accordance with the ASC 944-80, Financial Services – Separate Accounts.

The net investment income attributable to separate account assets supporting individual and group pension contracts accrues directly to the contract owner and is not reported on the condensed consolidated statements of income. While BlackRock has no economic interest in these separate account assets and liabilities, BlackRock earns policy administration and management fees associated with these products, which are included in investment advisory, administration fees and securities lending revenue on the condensed consolidated statements of income.

2. Significant Accounting Policies (continued)

Separate Account Collateral Assets Held and Liabilities Under Securities Lending Agreements. The Company facilitates securities lending arrangements whereby securities held by separate accounts maintained by BlackRock Life Limited are lent to third parties under global master securities lending agreements. In exchange, the Company receives collateral with minimum values generally ranging from approximately 102% to 112% of the value of the securities lent in order to reduce counterparty risk. The required collateral value is calculated on a daily basis. The global master securities lending agreements provide the Company, in the event of customer default, the right to liquidate collateral or to request additional collateral. Under the Company’s securities lending arrangements, the Company can resell or re-pledge the collateral and the borrower can resell or re-pledge the loaned securities. The securities lending transactions entered into by the Company are accompanied by an agreement that entitles the Company to request the borrower to return the securities at any time; therefore, these transactions are not reported as sales under ASC 860, Transfers and Servicing.

As a result of the Company’s ability to resell or re-pledge the collateral, the Company records on the condensed consolidated statements of financial condition the cash and noncash collateral received under these arrangements as its own asset in addition to an equal and offsetting collateral liability for the obligation to return the collateral. During the nine months ended September 30, 2013 and 2012, the Company had not re-sold or re-pledged any of the collateral received under these arrangements. At September 30, 2013 and December 31, 2012, the fair value of loaned securities held by separate account assets was approximately $20.2 billion and $21.0 billion, respectively, and the fair value of the collateral held under these securities lending agreements was approximately $22.0 billion and $23.0 billion, respectively.

Appropriated Retained Earnings. Upon the initial consolidation of CLOs, BlackRock records a cumulative effect adjustment to appropriated retained earnings on the condensed consolidated statements of financial condition equal to the difference between the fair value of the CLOs’ assets and the fair value of their liabilities. Such amounts are recorded as appropriated retained earnings as the CLO noteholders, not BlackRock, ultimately will receive the benefits or absorb the losses associated with the CLOs’ assets and liabilities. The net change in the fair value of the CLOs’ assets and liabilities is recorded as net income (loss) attributable to nonredeemable noncontrolling interests and as an adjustment to appropriated retained earnings.

Accounting Pronouncements Adopted in the Nine Months Ended September 30, 2013

Amendments to Accumulated Other Comprehensive Income Disclosures. On February 5, 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”), which added new disclosure requirements for items reclassified out of accumulated other comprehensive income (“AOCI”). See Note 15, Accumulated Other Comprehensive Income (Loss).

Disclosures About Offsetting Assets and Liabilities. On December 16, 2011, the FASB issued ASU 2011-11, Disclosures About Offsetting Assets and Liabilities (“ASU 2011-11”), which created new disclosure requirements about the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. On January 31, 2013, the FASB issued ASU 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”), that provides clarification about which instruments and transactions are subject to ASU 2011-11. The adoption of ASU 2011-11 and ASU 2013-01 on January 1, 2013 was not material to the condensed consolidated financial statements.

2. Significant Accounting Policies (continued)

Benchmark Interest Rate for Hedge Accounting. In July 2013, the FASB issued ASU 2013-10, Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2013-10”). ASU 2013-10 provides for the inclusion of certain interest rate benchmarks for hedge accounting purposes. The adoption of ASU 2013-10 in the third quarter 2013 did not have a material impact on the condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

Cumulative Translation Adjustment. In March 2013, the FASB issued ASU 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”). ASU 2013-05 addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. ASU 2013-05 is effective for the Company on January 1, 2014. The Company does not believe the adoption of ASU 2013-05 will have a material impact on the condensed consolidated financial statements.

Investment Company Guidance. In June 2013, the FASB issued ASU 2013-08, Financial Services — Investment Companies: Amendments to the Scope, Measurement, and Disclosure Requirements (“ASU 2013-08”). ASU 2013-08 amends the current criteria for an entity to qualify as an investment company, creates new disclosure requirements and amends the measurement criteria for certain interests in other investment companies. ASU 2013-08 is effective for the Company on January 1, 2014. The Company does not believe the adoption of ASU 2013-08 will have a material impact on the condensed consolidated financial statements.

Presentation of an Unrecognized Tax Benefit. In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). ASU 2013-11 provides guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 is effective for the Company on January 1, 2014. The Company does not believe the adoption of ASU 2013-11 will have a material impact on the condensed consolidated financial statements.

3. Investments

A summary of the carrying value of investments is as follows:


(in millions)	September 30, 2013		December 31, 2012
Available-for-sale investments		$168		$158
Held-to-maturity investments		57		112
Trading investments:
Consolidated sponsored investment funds		381		123
Other equity and debt securities		67		94
Deferred compensation plan mutual funds		57		53

Total trading investments		505		270
Other investments:
Consolidated sponsored investment funds		314		401
Equity method investments		564		595
Deferred compensation plan hedge fund equity method investments		11		9
Cost method investments⁽¹⁾		122		120
Carried interest		137		85

Total other investments		1,148		1,210

Total investments		$1,878		$1,750

⁽¹⁾

Amounts primarily include Federal Reserve Bank Stock.

At September 30, 2013, the Company consolidated $695 million of investments held by consolidated sponsored investment funds (excluding variable interest entities (“VIEs”)) of which $381 million and $314 million were classified as trading investments and other investments, respectively. At December 31, 2012, the Company consolidated $524 million of investments held by consolidated sponsored investment funds (excluding VIEs) of which $123 million and $401 million were classified as trading investments and other investments, respectively.

Available-for-Sale Investments

A summary of the cost and carrying value of investments classified as available-for-sale investments is as follows:


(in millions)
			Gross Unrealized				Carrying Value
At September 30, 2013	Cost		Gains		Losses		Carrying Value
Equity securities of sponsored investment funds		$163		$6		($4)		$165
Other securities		1		2		-		3

Total available-for-sale investments		$164		$8		($4)		$168


At December 31, 2012
Equity securities of sponsored investment funds		$142		$14		($1)		$155
Other securities		2		1		-		3

Total available-for-sale investments		$144		$15		($1)		$158

Available-for-sale investments primarily included seed investments in BlackRock sponsored investment mutual funds.

3. Investments (continued)

Held-to-Maturity Investments

The carrying value of held-to-maturity investments was $57 million and $112 million at September 30, 2013 and December 31, 2012, respectively. Held-to-maturity investments included foreign government debt held for regulatory purposes and the amortized cost (carrying value) of these investments approximated fair value. At September 30, 2013, $43 million of these investments would mature in one year or less and $14 million would mature after 10 years.

Trading Investments

A summary of the cost and carrying value of trading investments is as follows:


(in millions)	September 30, 2013				December 31, 2012
	Cost		Carrying Value		Cost		Carrying Value

Trading investments:
Deferred compensation plan mutual funds		$ 51		$ 57		$ 46		$ 53
Equity/Multi-asset mutual funds		190		194		154		162
Debt securities/fixed income mutual funds:
Corporate debt		126		126		44		44
Government debt		132		128		11		11

Total trading investments		$499		$505		$255		$270

At September 30, 2013, trading investments included $187 million of equity securities and $194 million of debt securities held by consolidated sponsored investment funds, $57 million of deferred compensation plan mutual fund investments and $67 million of other equity and debt securities.

Other Investments

A summary of the cost and carrying value of other investments is as follows:


(in millions)	September 30, 2013				December 31, 2012
	Cost		Carrying Value		Cost		Carrying Value

Other investments:
Consolidated sponsored investment funds		$303		$314		$378		$401
Equity method		480		564		541		595
Deferred compensation plan hedge fund equity method investments		9		11		15		9
Cost method investments:
Federal Reserve Bank stock		93		93		89		89
Other		17		29		31		31

Total cost method investments		110		122		120		120
Carried interest		-		137		-		85

Total other investments		$902		$1,148		$1,054		$1,210

Consolidated sponsored investment funds include third-party private equity funds, direct investments in private companies and third-party hedge funds held by BlackRock sponsored investment funds.

3. Investments (continued)

Other Investments (continued)

Equity method investments primarily include BlackRock’s direct investment in certain BlackRock sponsored investment funds. See Note 10, Other Assets, for information on the Company’s investment in PennyMac Financial Services, Inc. (“PennyMac”), which is included in other assets on the condensed consolidated statements of financial condition.

Cost method investments include nonmarketable securities, including Federal Reserve Bank stock, which is held for regulatory purposes and is restricted from sale. At September 30, 2013 and December 31, 2012, there were no indicators of impairment on these investments.

Carried interest represents allocations to BlackRock’s general partner capital accounts from certain funds. These balances are subject to change upon cash distributions, additional allocations or reallocations back to limited partners within the respective funds.

4. Consolidated Sponsored Investment Funds

The Company consolidates certain sponsored investment funds primarily because it is deemed to control such funds. The investments owned by these consolidated sponsored investment funds are classified as trading or other investments. The following table presents the balances related to these consolidated funds that were included on the condensed consolidated statements of financial condition as well as BlackRock’s net interest in these funds:


(in millions)	September 30, 2013		December 31, 2012
Cash and cash equivalents		$105		$133
Investments:
Trading investments		381		123
Other investments		314		401
Other assets		13		25
Other liabilities		(33)		(65)
Noncontrolling interests		(168)		(187)

BlackRock’s net interests in consolidated sponsored investment funds		$612		$430

BlackRock’s total exposure to consolidated sponsored investment funds of $612 million and $430 million at September 30, 2013 and December 31, 2012, respectively, represents the value of the Company’s economic ownership interest in these sponsored investment funds. Valuation changes associated with these consolidated investment funds are reflected in nonoperating income (expense) and partially offset in net income (loss) attributable to noncontrolling interests for the portion not attributable to BlackRock.

In addition, at September 30, 2013 and December 31, 2012, several consolidated CLOs and one investment fund, which were deemed to be VIEs, were excluded from the balances in the table above as the balances for these investment products are reported separately on the condensed consolidated statements of financial condition. See Note 6, Variable Interest Entities, for further discussion of these consolidated investment products.

The Company is not able to access cash and cash equivalents held by consolidated sponsored investment funds to use in its operating activities. In addition, the Company is not able to sell investments held by consolidated sponsored investment funds in order to obtain cash for use in the Company’s operations.

5. Fair Value Disclosures

Assets and liabilities measured at fair value on a recurring basis and other assets not held at fair value


September 30, 2013 (in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held at Fair Value⁽¹⁾		September 30, 2013

Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs)	$	165	$	-	$	1	$	-	$	166
Debt securities		-		2		-		-		2

Total available-for-sale		165		2		1		-		168
Held-to-maturity debt securities		-		-		-		57		57
Trading:
Deferred compensation plan mutual funds		57		-		-		-		57
Equity/Multi-asset mutual funds		194		-		-		-		194
Debt securities / fixed income mutual funds		61		193		-		-		254

Total trading		312		193		-		-		505
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		1		21		45		-		67
Private / public equity⁽²⁾		5		8		234		-		247

Total consolidated sponsored investment funds		6		29		279		-		314
Equity method:
Hedge funds / Funds of hedge funds		-		67		145		55		267
Private equity investments		-		-		98		-		98
Real estate funds		-		20		103		7		130
Fixed income mutual funds		63		-		-		-		63
Equity/Multi-asset, alternative mutual funds		6		-		-		-		6

Total equity method		69		87		346		62		564
Deferred compensation plan hedge fund equity method investments		-		11		-		-		11
Cost method investments		-		-		-		122		122
Carried interest		-		-		-		137		137

Total investments		552		322		626		378		1,878

Separate account assets		106,085		39,675		-		886		146,646
Separate account collateral held under securities lending agreements:
Equity securities		19,851		-		-		-		19,851
Debt securities		-		2,111		-		-		2,111

Total separate account collateral held under securities lending agreements		19,851		2,111		-		-		21,962
Other assets⁽³⁾		-		12		-		-		12
Assets of consolidated VIEs:
Bank loans and other assets		-		1,867		97		20		1,984
Bonds		-		64		35		-		99
Private / public equity⁽⁴⁾		-		7		17		-		24

Total assets of consolidated VIEs		-		1,938		149		20		2,107

Total	$	126,488	$	44,058	$	775	$	1,284	$	172,605

Liabilities:
Borrowings of consolidated VIEs	$	-	$	-	$	2,068	$	-	$	2,068
Separate account collateral liabilities under securities lending agreements		19,851		2,111		-		-		21,962
Other liabilities⁽⁵⁾		19		4		33		-		56

Total	$	19,870	$	2,115	$	2,101	$	-	$	24,086

⁽¹⁾

Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include investment companies and other assets, which in accordance with GAAP are not accounted for under a fair value measure. In accordance with GAAP, certain equity method investees do not account for both their financial assets and liabilities under fair value measures; therefore, the Company’s investment in such equity method investees may not represent fair value.

⁽²⁾

Level 3 amounts include $202 million and $32 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.

⁽³⁾

Amount includes company-owned and split-dollar life insurance policies.

⁽⁴⁾

Level 3 amounts include $15 million and $2 million of underlying third-party private equity funds and direct investments in private equity companies held by a private equity fund.

⁽⁵⁾

Amounts include a credit default swap (see Note 7, Derivatives and Hedging, for more information), securities sold short within consolidated sponsored investment funds and a contingent liability related to the acquisition of Credit Suisse’s ETF franchise.

5. Fair Value Disclosures (continued)

Assets and liabilities measured at fair value on a recurring basis and other assets not held at fair value



December 31, 2012 (in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Other Assets Not Held at Fair Value ⁽¹⁾		December 31, 2012

Assets:
Investments
Available-for-sale:
Equity securities (funds and CDOs)	$	155	$	-	$	1	$	-	$	156
Debt securities		-		2		-		-		2

Total available-for-sale		155		2		1		-		158
Held-to-maturity debt securities		-		-		-		112		112
Trading:
Deferred compensation plan mutual funds		53		-		-		-		53
Equity/Multi-asset mutual funds		159		3		-		-		162
Debt securities / fixed income mutual funds		5		50		-		-		55

Total trading		217		53		-		-		270
Other investments:
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		3		39		73		-		115
Private / public equity⁽²⁾		10		10		266		-		286

Total consolidated sponsored investment funds		13		49		339		-		401
Equity method:
Hedge funds / Funds of hedge funds		-		61		161		39		261
Private equity investments		-		-		90		-		90
Real estate funds		-		19		88		15		122
Fixed income mutual funds		46		-		-		-		46
Equity/Multi-asset, alternative mutual funds		76		-		-		-		76

Total equity method		122		80		339		54		595
Deferred compensation plan hedge fund equity method investments		-		9		-		-		9
Cost method investments		-		-		-		120		120
Carried interest		-		-		-		85		85

Total investments		507		193		679		371		1,750

Separate account assets		95,514		38,392		2		860		134,768
Separate account collateral held under securities lending agreements:
Equity securities		21,273		-		-		-		21,273
Debt securities		-		1,748		-		-		1,748

Total separate account collateral held under securities lending agreements		21,273		1,748		-		-		23,021
Other assets⁽³⁾		-		12		-		-		12
Assets of consolidated VIEs:
Bank loans		-		2,004		106		-		2,110
Bonds		-		78		46		-		124
Private / public equity⁽⁴⁾		2		6		22		-		30

Total assets of consolidated VIEs		2		2,088		174		-		2,264

Total	$	117,296	$	42,433	$	855	$	1,231	$	161,815

Liabilities:
Borrowings of consolidated VIEs	$	-	$	-	$	2,402	$	-	$	2,402
Separate account collateral liabilities under securities lending agreements		21,273		1,748		-		-		23,021
Other liabilities⁽⁵⁾		15		5		-		-		20

Total	$	21,288	$	1,753	$	2,402	$	-	$	25,443

⁽¹⁾

⁽²⁾

Level 3 amounts include $212 million and $54 million of underlying third-party private equity funds and direct investments in private equity companies held by private equity funds, respectively.

⁽³⁾

Amount includes company-owned and split-dollar life insurance policies.

⁽⁴⁾

Level 3 amounts include $20 million and $2 million of underlying third-party private equity funds and direct investments in private equity companies held by a private equity fund.

⁽⁵⁾

Amounts include a credit default swap (see Note 7, Derivatives and Hedging, for more information) and securities sold short within consolidated sponsored investment funds.

5. Fair Value Disclosures (continued)

Level 3 Assets. Level 3 investments of $626 million and $679 million at September 30, 2013 and December 31, 2012, respectively, primarily related to equity method investments and consolidated sponsored investment funds. Level 3 assets within investments, except for direct investments in private equity companies held by private equity funds described below, were primarily valued based upon NAVs received from internal and third-party fund managers.

Direct investments in private equity companies held by private equity funds totaled $34 million and $56 million at September 30, 2013 and December 31, 2012, respectively. Direct investments in private equity companies may be valued using the market approach or the income approach, or a combination thereof, and were valued based on an assessment of each underlying investment, incorporating evaluation of additional significant third-party financing, changes in valuations of comparable peer companies, the business environment of the companies, market indices, assumptions relating to appropriate risk adjustments for nonperformance and legal restrictions on disposition, among other factors. The fair value derived from the methods used is evaluated and weighted, as appropriate, considering the reasonableness of the range of values indicated. Under the market approach, fair value may be determined by reference to multiples of market-comparable companies or transactions, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples. Under the income approach, fair value may be determined by discounting the expected cash flows to a single present value amount using current expectations about those future amounts. Unobservable inputs used in a discounted cash flow model may include projections of operating performance generally covering a five-year period and a terminal value of the private equity direct investment. For securities utilizing the discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, risk premium or discount for lack of marketability in isolation could result in a significantly lower (higher) fair value measurement. For securities utilizing the market comparable companies valuation technique, a significant increase (decrease) in the EBITDA multiple in isolation could result in a significantly higher (lower) fair value measurement.

Level 3 assets recorded within separate account assets include single-broker nonbinding quotes for fixed income securities and equity securities that have unobservable inputs due to certain corporate actions.

Level 3 assets of consolidated VIEs include bank loans and bonds valued based on single-broker non-binding quotes and direct private equity investments and private equity funds valued based upon internal as well as third-party fund manager valuations, which may be adjusted by using the returns of certain market indices.

Level 3 Liabilities. Level 3 liabilities recorded as borrowings of consolidated VIEs include CLO borrowings valued based upon single-broker non-binding quotes.

5. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2013


(in millions)	June 30, 2013		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			September 30, 2013		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)		$1		$-			$-		$-			$-			$-		$-			$1		$-
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		47		2			-		(2	)		(2	)		-		-			45		-
Private equity		249		10			-		(23	)		-			-		(2	)		234		7
Equity method:
Hedge funds / Funds of hedge funds		157		1			1		(1	)		(13	)		-		-			145		1
Private equity investments		105		4			1		(10	)		(2	)		-		-			98		4
Real estate funds		97		6			2		-			(2	)		-		-			103		6

Total Level 3 investments		656		23			4		(36	)		(19	)		-		(2	)		626		18

Assets of consolidated VIEs:
Bank loans		93		-			18		(8	)		-			40		(46	)		97
Bonds		35		1			-		(1	)		-			-		-			35
Private equity		19		-			-		(2	)		-			-		-			17

Total Level 3 assets of consolidated VIEs		147		1			18		(11	)		-			40		(46	)		149		n/a	⁽³⁾

Total Level 3 assets		$803		$24			$22		($47	)		($19	)		$40		($48	)		$775

Liabilities:
Borrowings of consolidated VIEs		$2,145		($5	)		$-		$-			($82	)		$-		$-			$2,068		n/a	⁽³⁾
Other liabilities		-		-			-		-			33			-		-			33

Total Level 3 liabilities		$2,145		($5	)		$-		$-			($49	)		$-		$-			$2,101

n/a

– not applicable

⁽¹⁾

Amounts primarily include distributions from equity method investees, repayments of borrowings of consolidated VIEs and a contingent liability related to the acquisition of Credit Suisse’s ETF franchise.

⁽²⁾

Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾

The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income.

5. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2013


(in millions)	December 31, 2012		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			September 30, 2013		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)		$1		$-			$-		$-			$-			$-		$-			$1		$-
Consolidated sponsored investment funds:
Hedge funds / Funds of hedge funds		73		8			12		(11	)		(30	)		-		(7	)		45		6
Private equity		266		26			12		(62	)		-			-		(8	)		234		21
Equity method:
Hedge funds / Funds of hedge funds		161		10			2		(1	)		(27	)		-		-			145		10
Private equity investments		90		14			10		(10	)		(6	)		-		-			98		14
Real estate funds		88		14			5		-			(4	)		-		-			103		14

Total Level 3 investments		679		72			41		(84	)		(67	)		-		(15	)		626		65

Separate account assets		2		-			-		(2	)		-			-		-			-		n/a	⁽³⁾
Assets of consolidated VIEs:
Bank loans		106		(1	)		91		(48	)		-			71		(122	)		97
Bonds		46		-			4		(15	)		-			-		-			35
Private equity		22		1			-		(6	)		-			-		-			17
Fund of hedge funds		-		-			134		-			(134	)		-		-			-

Total Level 3 assets of consolidated VIEs		174		-			229		(69	)		(134	)		71		(122	)		149		n/a	⁽⁴⁾

Total Level 3 assets		$855		$72			$270		($155	)		($201	)		$71		($137	)		$775

Liabilities:
Borrowings of consolidated VIEs		$2,402		($9	)		$-		$-			($343	)		$-		$-			$2,068		n/a	⁽⁴⁾
Other liabilities		-		-			-		-			33			-		-			33

Total Level 3 liabilities		$2,402		($9	)		$-		$-			($310	)		$-		$-			$2,101

n/a

– not applicable

⁽¹⁾

Amounts primarily include distributions from equity method investees, repayments of borrowings of consolidated VIEs, elimination of investment related to a deconsolidation of a consolidated VIE, a reclassification of an investment from a consolidated sponsored investment fund to an equity method investment due to a change in ownership percentage and a contingent liability related to the acquisition of Credit Suisse’s ETF franchise.

⁽²⁾

Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾

The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the condensed consolidated statements of income.

⁽⁴⁾

The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income.

5. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012


(in millions)	June 30, 2012		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			September 30, 2012		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)		$1		$-			$-		$-			$-			$-		$-			$1		$-
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		46		8			3		(2	)		-			-		-			55		8
Private equity		298		22			-		(14	)		(8	)		-		-			298		20
Equity method:
Hedge funds / Funds of hedge funds		187		14			-		-			(21	)		-		-			180		14
Private equity investments		88		1			1		-			-			-		-			90		2
Real estate funds		101		6			6		(7	)		(3	)		-		-			103		4

Total Level 3 investments		721		51			10		(23	)		(32	)		-		-			727		48

Separate account assets		7		(4	)		6		(7	)		-			34		-			36		n/a	⁽³⁾
Assets of consolidated VIEs:
Bank loans		85		2			7		(24	)		7			36		(24	)		89
Bonds		44		1			-		-			-			-		-			45
Private equity		25		2			2		(3	)		-			-		-			26

Total Level 3 assets of consolidated VIEs		154		5			9		(27	)		7			36		(24	)		160		n/a	⁽⁴⁾

Total Level 3 assets		$882		$52			$25		($57	)		($25	)		$70		($24	)		$923

Liabilities:
Borrowings of consolidated VIEs		$1,439		($27	)		$-		$-			$377			$-		$-			$1,843		n/a	⁽⁴⁾

n/a

– not applicable

⁽¹⁾

Amount primarily includes distributions from equity method investees, repayments of borrowings of consolidated VIEs, and loans and borrowings related to the consolidation of one additional CLO.

⁽²⁾

Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾

The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the condensed consolidated statements of income.

⁽⁴⁾

The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income.

5. Fair Value Disclosures (continued)

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine Months Ended September 30, 2012


(in millions)	December 31, 2011		Realized and unrealized gains (losses) in earnings and OCI			Purchases		Sales and maturities			Issuances and other settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3			September 30, 2012		Total net gains (losses) included in earnings⁽²⁾
Assets:
Investments
Available-for-sale:
Equity securities (CDOs)		$1		$-			$-		$-			$-			$-		$-			$1		$-
Consolidated sponsored investment funds:
Hedge funds / Funds of funds		22		4			30		(2	)		(2	)		3		-			55		4
Private equity		313		43			2		(46	)		(8	)		-		(6	)		298		38
Equity method:
Hedge funds / Funds of hedge funds		193		33			-		-			(46	)		-		-			180		33
Private equity investments		85		7			4		-			(6	)		-		-			90		8
Real estate funds		88		8			19		(7	)		(5	)		-		-			103		6

Total Level 3 investments		702		95			55		(55	)		(67	)		3		(6	)		727		89

Separate account assets		10		(5	)		10		(18	)		-			48		(9	)		36		n/a	⁽³⁾
Assets of consolidated VIEs:
Bank loans		83		2			25		(31	)		7			89		(86	)		89
Bonds		40		3			2		-			-			-		-			45
Private equity		27		4			2		(7	)		-			-		-			26

Total Level 3 assets of consolidated VIEs		150		9			29		(38	)		7			89		(86	)		160		n/a	⁽⁴⁾

Total Level 3 assets		$862		$99			$94		($111	)		($60	)		$140		($101	)		$923

Liabilities:
Borrowings of consolidated VIEs		$1,574		($66	)		$-		$-			$203			$-		$-			$1,843		n/a	⁽⁴⁾

n/a

– not applicable

⁽¹⁾

Amount primarily includes distributions from equity method investees, repayments of borrowings of consolidated VIEs, and loans and borrowings related to the consolidation of one additional CLO.

⁽²⁾

Earnings attributable to the change in unrealized gains (losses) relating to assets still held at the reporting date.

⁽³⁾

The net investment income attributable to separate account assets accrues directly to the contract owners and is not reported on the condensed consolidated statements of income.

⁽⁴⁾

The net gain (loss) on consolidated VIEs is solely attributable to noncontrolling interests on the condensed consolidated statements of income.

5. Fair Value Disclosures (continued)

Realized and Unrealized Gains (Losses) for Level 3 Assets and Liabilities. Realized and unrealized gains (losses) recorded for Level 3 assets and liabilities are reported in nonoperating income (expense) on the condensed consolidated statements of income. A portion of net income (loss) for consolidated investments and all of the net income (loss) for consolidated VIEs are allocated to noncontrolling interests to reflect net income (loss) not attributable to the Company.

Transfers in and/or out of Levels. Transfers in and/or out of levels are reflected when significant inputs, including market inputs or performance attributes, used for the fair value measurement become observable/unobservable, or when the Company determines it has the ability, or no longer has the ability, to redeem, in the near term, certain investments that the Company values using a NAV (or a capital account), or when the book value of certain equity method investments no longer represents fair value as determined under valuation methodologies.

Separate Account Assets. During the three and nine months ended September 30, 2012, there were $34 million and $48 million, respectively, of transfers of equity securities into Level 3 from Level 1, primarily due to market inputs no longer being considered observable.

Assets of Consolidated VIEs. During the three and nine months ended September 30, 2013, there were $46 million and $122 million, respectively, of transfers out of Level 3 to Level 2 related to bank loans. In addition, during the three and nine months ended September 30, 2013, there were $40 million and $71 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of Levels 2 and 3 were primarily due to availability/unavailability of observable market inputs, including inputs from pricing vendors and brokers.

During the three and nine months ended September 30, 2012, there were $24 million and $86 million, respectively, of transfers out of Level 3 into Level 2 related to bank loans. In addition, during the three and nine months ended September 30, 2012, there were $36 million and $89 million, respectively, of transfers into Level 3 from Level 2 related to bank loans. These transfers in and out of Levels 2 and 3 were primarily due to availability/unavailability of observable market inputs, including inputs from pricing vendors and brokers.

Consolidated Sponsored Investment Funds. During the nine months ended September 30, 2013, there were $12 million of transfers out of Level 1 to Level 2 related to consolidated private equity funds. This transfer was due to a direct investment in a public company valued at a discount due to restrictions on sale.

Other Significant Settlements. During the three and nine months ended September 30, 2013, there were $17 million and $37 million, respectively, of distributions from equity method investees categorized in Level 3.

During the nine months ended September 30, 2013, other settlements included $134 million related to a deconsolidation of a consolidated fund of hedge funds, which was previously classified as a VIE. This fund was deconsolidated during the second quarter 2013 due to the granting of additional substantive rights to unaffiliated investors of the fund.

In addition, during the nine months ended September 30, 2013, there was a $28 million reclassification of a Level 3 investment from a consolidated sponsored investment fund to an equity method investment due to a change in BlackRock’s ownership percentage.

During the three and nine months ended September 30, 2012, there were $24 million and $57 million, respectively, of distributions from equity method investees categorized in Level 3.

5. Fair Value Disclosures (continued)

In addition, during the three and nine months ended September 30, 2012, other settlements included $406 million of borrowings related to the consolidation of one additional CLO.

Disclosures of Fair Value for Financial Instruments Not Held at Fair Value. At September 30, 2013 and December 31, 2012, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below:


	September 30, 2013				December 31, 2012
(in millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Fair Value Hierarchy
Financial Assets:
Cash and cash equivalents	$	3,987	$	3,987	$	4,606	$	4,606		Level 1	⁽¹⁾
Accounts receivable		4,311		4,311		2,250		2,250		Level 1	⁽²⁾
Cash and cash equivalents of consolidated VIEs		93		93		297		297		Level 1	⁽¹⁾
Financial Liabilities:
Accounts payable and accrued liabilities		3,322		3,322		1,055		1,055		Level 1	⁽²⁾
Short-term borrowings		-		-		100		100		Level 1	⁽²⁾
Long-term borrowings		4,938		5,310		5,687		6,275		Level 2	⁽³⁾

⁽¹⁾

Cash and cash equivalents are carried at either cost or amortized cost that approximates fair value due to their short-term maturities. At September 30, 2013 and December 31, 2012, approximately $76 million and $98 million, respectively, of money market funds were recorded within cash and cash equivalents on the condensed consolidated statements of financial condition. Money market funds are valued based on quoted market prices, or $1.00 per share, which generally is the NAV of the fund. At September 30, 2013 and December 31, 2012, approximately $105 million and $133 million, respectively, related to cash and cash equivalents held by consolidated sponsored investment funds.

⁽²⁾

The carrying amounts of accounts receivable, accounts payable and accrued liabilities and short-term borrowings approximate fair value due to their short-term nature.

⁽³⁾

Long-term borrowings are recorded at amortized cost. The fair value of the long-term borrowings, including the current portion of long-term borrowings, is estimated using market prices at the end of September 2013 and December 2012, respectively. See Note 11, Borrowings, for further information on the September 30, 2013 fair value of the Company’s long-term borrowings.

5. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share

As a practical expedient to value certain investments that do not have a readily determinable fair value and have attributes of an investment company, the Company relies on NAV as the fair value. The following tables list information regarding all investments that use a fair value measurement to account for both their financial assets and financial liabilities in their calculation of a NAV per share (or equivalent).

September 30, 2013

(in millions)

Ref

Fair Value

Total Unfunded
Commitments

Redemption
Frequency

Redemption
Notice Period

Consolidated sponsored investment funds:

Private equity funds of funds

)

$202

$25

n/r

Other funds of hedge funds

)

Monthly (26%),

Quarterly (2%),

n/r (72%)

2 – 90 days

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds

)

212

Monthly (2%), Quarterly (32%)

n/r (66%)

15 – 90 days

Private equity funds

)

n/r

Real estate funds

)

123

Quarterly (16%)

n/r (84%)

60 days

Deferred compensation plan hedge fund investments

)

Monthly (27%), Quarterly (73%)

60 – 90 days

Consolidated VIEs:

Private equity fund

)

n/r

Total

$718

$186

n/r

– not redeemable

⁽¹⁾

Comprised of equity method investments, which include investment companies, which in accordance with GAAP account for their financial assets and most financial liabilities under fair value measures; therefore, the Company’s investment in such equity method investees approximates fair value.

5. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)

December 31, 2012

(in millions)

Ref

Fair Value

Total
Unfunded
Commitments

Redemption
Frequency

Redemption
Notice Period

Consolidated sponsored investment funds:

Private equity funds of funds

)

$212

$32

n/r

Other funds of hedge funds

)

Monthly (22%)

Quarterly (11%)

n/r (67%)

1 – 90 days

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds

)

222

Monthly (2%)

Quarterly (28%)

n/r (70%)

15 – 90 days

Private equity funds

)

135

n/r

Real estate funds

)

107

Quarterly (18%)

n/r (82%)

60 days

Deferred compensation plan hedge fund investments

)

Monthly (33%)

Quarterly (67%)

60 – 90 days

Consolidated VIE:

Private equity funds

)

n/r

Trading:

Equity

)

Daily (100%)

None

Total

$761

$225

n/r

– not redeemable

⁽¹⁾

(a)

This category includes the underlying third-party private equity funds within consolidated BlackRock sponsored private equity funds of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds, the Company may sell or transfer its interest, which may need approval by the general partner of the underlying funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately seven years at both September 30, 2013 and December 31, 2012. The total remaining unfunded commitments to other third-party funds were $25 million and $32 million at September 30, 2013 and December 31, 2012, respectively. The Company was contractually obligated to fund $30 million at both September 30, 2013 and December 31, 2012 to the consolidated funds.

(b)

This category includes consolidated funds of hedge funds that invest in multiple strategies to diversify risks. The fair values of the investments have been estimated using the NAV of the fund’s ownership interest in partners’ capital of each fund in the portfolio. Certain of the underlying funds can be redeemed as long as there are no restrictions in place. At September 30, 2013 and December 31, 2012, the underlying funds that are currently restricted from redemptions within one year will be redeemable in approximately 12 to 24 months. This category also includes a consolidated offshore feeder fund that invests in a master fund with multiple alternative investment strategies. The fair value of this investment has been estimated using the NAV of the master offshore fund held by the feeder fund. The investment is currently subject to restrictions in place by the underlying master fund.

5. Fair Value Disclosures (continued)

Investments in Certain Entities that Calculate Net Asset Value Per Share (continued)

(c)

This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit and mortgage instruments and other third-party hedge funds. The fair values of the investments have been estimated using the NAV of the Company’s ownership interest in partners’ capital. It was estimated that the investments in the funds that are not subject to redemption will be liquidated over a weighted-average period of approximately four and five years at September 30, 2013 and December 31, 2012, respectively.

(d)

This category includes several private equity funds that initially invest in nonmarketable securities of private companies, which ultimately may become public in the future. The fair values of these investments have been estimated using capital accounts representing the Company’s ownership interest in the funds as well as other performance inputs. The Company’s investment in each fund is not subject to redemption and is normally returned through distributions as a result of the liquidation of the underlying assets of the private equity funds. It was estimated that the investments in these funds will be liquidated over a weighted-average period of approximately five years at both September 30, 2013 and December 31, 2012.

(e)

This category includes several real estate funds that invest directly in real estate and real estate related assets. The fair values of the investments have been estimated using capital accounts representing the Company’s ownership interest in the funds. A majority of the Company’s investments are not subject to redemption or are not currently redeemable and is normally returned through distributions as a result of the liquidation of the underlying assets of the real estate funds. It is estimated that the investments in these funds not subject to redemptions will be liquidated over a weighted-average period of approximately seven years at September 30, 2013 and eight years at December 31, 2012.

(f)

This category includes investments in certain hedge funds that invest in energy and health science related equity securities. The fair values of the investments in this category have been estimated using capital accounts representing the Company’s ownership interest in partners’ capital as well as performance inputs. The investments in these funds will be redeemed upon settlement of certain deferred compensation liabilities.

(g)

This category includes the underlying third-party private equity funds within one consolidated BlackRock sponsored private equity fund of funds. The fair values of the investments in the third-party funds have been estimated using capital accounts representing the Company’s ownership interest in each fund in the portfolio as well as other performance inputs. These investments are not subject to redemption; however, for certain funds the Company may sell or transfer its interest, which may need approval by the general partner of the underlying third-party funds. Due to the nature of the investments in this category, the Company reduces its investment by distributions that are received through the realization of the underlying assets of the funds. It is estimated that the underlying assets of these funds will be liquidated over a weighted-average period of approximately two years at September 30, 2013 and three years at December 31, 2012. Total remaining unfunded commitments to other third-party funds were $1 million at both September 30, 2013 and December 31, 2012, which commitments are required to be funded by capital contributions from noncontrolling interest holders.

(h)

This category includes consolidated offshore feeder funds that invest in master funds with multiple equity strategies to diversify risks. The fair values of the investments in this category have been estimated using the NAV of master offshore funds held by the feeder funds. Investments in this category generally can be redeemed at any time, as long as there are no restrictions in place by the underlying master funds.

Fair Value Option. Upon the initial consolidation of certain CLOs, the Company elected to adopt the fair value option provisions for eligible assets and liabilities, including bank loans and borrowings of the CLOs to mitigate accounting mismatches between the carrying value of the assets and liabilities and to achieve operational simplification. To the extent there is a difference between the change in fair value of the assets and liabilities, the difference will be reflected as net income (loss) attributable to nonredeemable noncontrolling interests on the condensed consolidated statements of income and offset by a change in appropriated retained earnings on the condensed consolidated statements of financial condition.

5. Fair Value Disclosures (continued)

The following table summarizes information related to those assets and liabilities selected for fair value accounting at September 30, 2013 and December 31, 2012:


(in millions)	September 30, 2013		December 31, 2012
CLO Bank Loans:
Aggregate principal amounts outstanding		$1,976		$2,124
Fair value		1,964		2,110

Aggregate unpaid principal balance in excess of (less than) fair value		$12		$14

Unpaid principal balance of loans more than 90 days past due		$12		$4
Aggregate fair value of loans more than 90 days past due		7		-

Aggregate unpaid principal balance in excess of fair value for loans more than 90 days past due		$5		$4


CLO Borrowings:
Aggregate principal amounts outstanding		$2,201		$2,535
Fair value		$2,068		$2,402

At September 30, 2013, the principal amounts outstanding of the borrowings issued by the CLOs mature between 2016 and 2025.

During the three months ended September 30, 2013 and 2012, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $25 million and a $45 million gain, respectively, which were offset by a $28 million and a $44 million loss, respectively, from the change in fair value of the CLO borrowings.

During the nine months ended September 30, 2013 and 2012, the change in fair value of the bank loans and bonds held by the CLOs resulted in a $104 million and a $123 million gain, respectively, which were offset by a $92 million and a $118 million loss, respectively, from the change in fair value of the CLO borrowings.

The net gains (losses) were recorded in net gain (loss) on consolidated VIEs on the condensed consolidated statements of income.

The change in fair value of the assets and liabilities included interest income and expense, respectively.

6. Variable Interest Entities

In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, including collateralized debt obligations (“CDOs”)/CLOs and sponsored investment funds, which may be considered VIEs. The Company receives advisory fees and/or other incentive-related fees for its services and may from time to time own equity or debt securities or enter into derivatives with the vehicles, each of which are considered variable interests. The Company enters into these variable interests principally to address client needs through the launch of such investment vehicles. The VIEs are primarily financed via capital contributed by equity and debt holders. The Company’s involvement in financing the operations of the VIEs is generally limited to its equity interests.

6. Variable Interest Entities (continued)

The primary beneficiary (“PB”) of a VIE that is an investment fund that meets the conditions of ASU 2010-10, Amendments to Statement 167 for Certain Investment Funds (“ASU 2010-10”), is the enterprise that has a variable interest (or combination of variable interests, including those of related parties) that will absorb a majority of the entity’s expected losses, receive a majority of the entity’s expected residual returns or both. In order to determine whether the Company is the PB of a VIE, management must make significant estimates and assumptions of probable future cash flows of the VIEs. Assumptions made in such analyses may include, but are not limited to, market prices of securities, market interest rates, potential credit defaults on individual securities or default rates on a portfolio of securities, pre-payments, realization of gains, liquidity or marketability of certain securities, discount rates and the probability of certain other outcomes.

The PB of a CDO/CLO or other entity that is a VIE that does not meet the conditions of ASU 2010-10 is the enterprise that has the power to direct activities of the entity that most significantly impact the entity’s economic performance and has the obligation to absorb losses or the right to receive benefits that potentially could be significant to the entity.

Consolidated VIEs. Consolidated VIEs included CLOs in which BlackRock did not have an investment; however, BlackRock, as the collateral manager, was deemed to have both the power to control the activities of the CLOs and the right to receive benefits that could potentially be significant to the CLOs. In addition, BlackRock was the PB of one investment fund because it absorbed the majority of the variability due to its de facto third-party relationships with other partners in the fund. The assets of these VIEs are not available to creditors of the Company. In addition, the investors in these VIEs have no recourse to the credit of the Company. At September 30, 2013 and December 31, 2012, the following balances related to VIEs were consolidated on the condensed consolidated statements of financial condition:


(in millions)	September 30, 2013		December 31, 2012
Assets of consolidated VIEs:
Cash and cash equivalents		$93		$297
Bank loans		1,964		2,110
Bonds		99		124
Other investments and other assets		44		30

Total bank loans, bonds, other investments and other assets		2,107		2,264
Liabilities of consolidated VIEs:
Borrowings		(2,068)		(2,402)
Other liabilities		(88)		(103)
Appropriated retained earnings		(25)		(29)
Noncontrolling interests of consolidated VIEs		(19)		(27)

Total BlackRock net interests in consolidated VIEs		$-		$-

For the three months ended September 30, 2013 and 2012, the Company recorded a nonoperating loss of $6 million and a nonoperating gain of $2 million, respectively, offset by a $6 million net loss attributable to nonredeemable noncontrolling interests and a $2 million net gain attributable to nonredeemable noncontrolling interests, respectively, on the condensed consolidated statements of income.

6. Variable Interest Entities (continued)

For the nine months ended September 30, 2013 and 2012, the Company recorded a nonoperating loss of $2 million and a nonoperating gain of $1 million, respectively, offset by a $2 million net loss attributable to nonredeemable noncontrolling interests and a $1 million net gain attributable to nonredeemable noncontrolling interests, respectively, on the condensed consolidated statements of income.

At September 30, 2013 and December 31, 2012, the weighted-average maturities of the bank loans and bonds attributable to consolidated VIEs were approximately 4.7 and 4.5 years, respectively.

Non-Consolidated VIEs. At September 30, 2013 and December 31, 2012, the Company’s carrying value of assets and liabilities and its maximum risk of loss related to VIEs for which it was the sponsor or in which it held a variable interest, but for which it was not the PB, was as follows:


(in millions)	Variable Interests on the Condensed Consolidated Statement of Financial Condition
At September 30, 2013	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)		Maximum Risk of Loss⁽¹⁾
CDOs/CLOs		$1		$1		($4)		$19
Other sponsored investment funds:
Collective trusts		-		166		-		166
Other		18		130		(5)		148

Total		$19		$297		($9)		$333

At December 31, 2012
CDOs/CLOs		$1		$1		($5)		$19
Other sponsored investment funds:
Collective trusts		-		248		-		248
Other		17		61		(3)		77

Total		$18		$310		($8)		$344

⁽¹⁾

At both September 30, 2013 and December 31, 2012, BlackRock’s maximum risk of loss associated with these VIEs primarily related to: (i) advisory fee receivables; (ii) BlackRock’s investments; and (iii) $17 million of credit protection sold by BlackRock to a third party in a synthetic CDO transaction.

The net assets related to the above CDOs/CLOs and other sponsored investment funds, including collective trusts, that the Company does not consolidate were as follows:

CDOs/CLOs


(in billions)	September 30, 2013		December 31, 2012
Assets at fair value		$3

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