Fair Value Disclosures

12 Months Ended

Dec. 31, 2019

8. Fair Value Disclosures

Fair Value Hierarchy

Assets and liabilities measured at fair value on a recurring basis

December 31, 2019 (in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Investments Measured at NAV⁽¹⁾		Other⁽²⁾		December 31, 2019
Assets:
Investments
Debt securities:
Held-to-maturity investments	$	—	$	—	$	—	$	—	$	249	$	249
Trading securities		—		1,241		8		—		—		1,249
Total debt securities		—		1,241		8		—		249		1,498
Equity securities at FVTNI:
Deferred compensation plan mutual funds		23		—		—		—		—		23
Equity securities/Multi-asset mutual funds		1,903		—		—		—		—		1,903
Total equity securities at FVTNI		1,926		—		—		—		—		1,926
Equity method:
Equity and fixed income mutual funds		157		—		—		—		—		157
Hedge funds/funds of hedge funds		—		—		—		220		—		220
Private equity funds		—		—		—		248		—		248
Real assets funds		—		—		—		296		—		296
Other		12		—		—		10		—		22
Total equity method		169		—		—		774		—		943
Bank loans		—		27		177		—		—		204
Federal Reserve Bank Stock		—		—		—		—		93		93
Carried interest		—		—		—		—		528		528
Other investments⁽³⁾		—		—		9		98		190		297
Total investments		2,095		1,268		194		872		1,060		5,489
Other assets⁽⁴⁾		173		—		—		—		—		173
Separate account assets		72,515		29,582		—		—		747		102,844
Separate account collateral held under securities lending agreements:
Equity securities		10,209		—		—		—		—		10,209
Debt securities		—		5,257		—		—		—		5,257
Total separate account collateral held under securities lending agreements		10,209		5,257		—		—		—		15,466
Total	$	84,992	$	36,107	$	194	$	872	$	1,807		123,972
Liabilities:
Separate account collateral liabilities under securities lending agreements	$	10,209	$	5,257	$	—	$	—	$	—	$	15,466
Other liabilities⁽⁵⁾		—		10		388		—		—		398
Total	$	10,209	$	5,267	$	388	$	—	$	—	$	15,864

⁽¹⁾	^{Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient.}

⁽²⁾

^{Amounts are comprised of investments held at amortized cost and cost, adjusted for observable price changes, carried interest and certain equity method investments, which include sponsored investment funds and other assets, which 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.}

⁽³⁾	^{Level 3 amounts primarily include direct investments in private equity companies held by private equity funds.}

⁽⁴⁾	^{Amount includes a minority investment in a publicly traded company.}

⁽⁵⁾

Amounts primarily include contingent liabilities related to certain acquisitions (see Note 16, Commitments and Contingencies, for more information) and other liabilities of a consolidated CLO classified based on the significance of unobservable inputs used for calculating the fair value of consolidated CLO assets.

Assets and liabilities measured at fair value on a recurring basis

December 31, 2018 (in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Investments Measured at NAV⁽¹⁾		Other⁽²⁾		December 31, 2018
Assets:
Investments
Debt securities:
Held-to-maturity investments	$	—	$	—	$	—	$	—	$	188	$	188
Trading securities		—		1,656		4		—		—		1,660
Total debt securities		—		1,656		4		—		188		1,848
Equity securities at FVTNI:
Deferred compensation plan mutual funds		34		—		—		—		—		34
Equity securities/Multi-asset mutual funds		987		—		—		—		—		987
Total equity securities at FVTNI		1,021		—		—		—		—		1,021
Equity method:
Equity and fixed income mutual funds		122		—		—		—		—		122
Hedge funds/funds of hedge funds		—		—		—		173		—		173
Private equity funds		—		—		—		116		—		116
Real assets funds		—		—		—		353		—		353
Other		—		—		—		14		3		17
Total equity method		122		—		—		656		3		781
Bank loans		—		14		70		—		—		84
Federal Reserve Bank Stock		—		—		—		—		92		92
Carried interest		—		—		—		—		387		387
Other investments⁽³⁾		—		—		82		106		75		263
Total investments		1,143		1,670		156		762		745		4,476
Other assets⁽⁴⁾		122		—		—		—		—		122
Separate account assets		63,610		25,810		—		—		865		90,285
Separate account collateral held under securities lending agreements:
Equity securities		15,066		—		—		—		—		15,066
Debt securities		—		5,589		—		—		—		5,589
Total separate account collateral held under securities lending agreements		15,066		5,589		—		—		—		20,655
Total	$	79,941	$	33,069	$	156	$	762	$	1,610	$	115,538
Liabilities:
Separate account collateral liabilities under securities lending agreements	$	15,066	$	5,589	$	—	$	—	$	—	$	20,655
Other liabilities⁽⁵⁾		—		6		371		—		—		377
Total	$	15,066	$	5,595	$	371	$	—	$	—	$	21,032

⁽¹⁾	^{Amounts are comprised of certain investments measured at fair value using NAV (or its equivalent) as a practical expedient.}

⁽²⁾

^{Amounts are comprised of investments held at cost or amortized cost, carried interest and certain equity method investments, which include sponsored investment funds and other assets, which 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.}

⁽³⁾	^{Level 3 amounts include direct investments in private equity companies held by private equity funds.}

⁽⁴⁾	^{Amount includes a minority investment in a publicly traded company.}

⁽⁵⁾

^{Amounts primarily include contingent liabilities related to certain acquisitions (see Note 16, Commitments and Contingencies, for more information) and other liabilities of a consolidated CLO classified based on the significance of unobservable inputs used for calculating the fair value of consolidated CLO assets.}

Level 3 Assets. Level 3 assets may include investments in CLOs and bank loans of consolidated CLOs, which were valued based on single-broker nonbinding quotes and direct private equity investments, which were valued using the market or income approach as described below.

Level 3 investments of $194 million and $156 million at December 31, 2019 and 2018, respectively, included bank loans of a consolidated CLO, investments in CLOs and direct investments in private equity companies held by consolidated private equity funds.

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 investments utilizing a discounted cash flow valuation technique, a significant increase (decrease) in the discount rate, risk premium or discount for lack of marketability in isolation could have resulted in a significantly lower (higher) fair value measurement as of December 31, 2019. For investments utilizing the market-comparable valuation technique, a significant increase (decrease) in a valuation multiple in isolation could have resulted in a significantly higher (lower) fair value measurement as of December 31, 2019.

Level 3 Liabilities. Level 3 liabilities primarily include contingent liabilities associated with certain acquisitions, which were valued based upon discounted cash flow analyses using unobservable market data inputs and borrowings of a consolidated CLO, which were valued based on the fair value of the assets of the consolidated CLO less the fair value of the Company’s economic interest in the CLO.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2019

(in millions)	December 31, 2018		Realized and Unrealized Gains (Losses)			Purchases		Sales and Maturities		Issuances and Other Settlements⁽¹⁾			Transfers into Level 3		Transfers out of Level 3⁽²⁾			December 31, 2019		Total Net Unrealized Gains (Losses) Included in Earnings⁽³⁾
Assets:
Investments:
Debt securities:
Trading	$	4	$	—		$	10	$	—	$	—		$	—	$	(6	)	$	8	$	—
Total debt securities		4		—			10		—		—			—		(6	)		8		—
Private equity		82		—			—		—		—			—		(73	)		9		—
Bank loans⁽⁴⁾		70		—			107		—		—			—		—			177		—
Total investments		156		—			117		—		—			—		(79	)		194		—
Total Level 3 assets	$	156	$	—		$	117	$	—	$	—		$	—	$	(79	)	$	194	$	—
Liabilities:
Other liabilities⁽⁴⁾	$	371	$	(53	)	$	—	$	—	$	(36	)	$	—	$	—		$	388	$	(53	)
Total Level 3 liabilities	$	371	$	(53	)	$	—	$	—	$	(36	)	$	—	$	—		$	388	$	(53	)

(1)	Amounts include proceeds from borrowings of a consolidated CLO and contingent liability payments in connection with certain prior acquisitions.

(2)	Amounts include an investment in a consolidated entity that no longer qualifies as an investment company and is no longer accounted for under a fair value measure.

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

(4)	Amounts include contingent liabilities in connection with certain acquisitions and bank loans and borrowings related to a consolidated CLO.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2018

(in millions)	December 31, 2017		Realized and Unrealized Gains (Losses)			Purchases		Sales and Maturities			Issuances and Other Settlements⁽¹⁾		Transfers into Level 3		Transfers out of Level 3			December 31, 2018		Total Net Unrealized Gains (Losses) Included in Earnings⁽²⁾
Assets:
Investments:
Debt securities
Available-for-sale securities⁽³⁾	$	—	$	—		$	26	$	—		$	—	$	—	$	(26	)	$	—	$	—
Trading		—		—			9		—			—		—		(5	)		4		—
Total debt securities		—		—			35		—			—		—		(31	)		4		—
Private equity		116		(20	)		—		(14	)		—		—		—			82		(20	)
Bank loans⁽⁴⁾		—		—			—		—			70		—		—			70		—
Total investments		116		(20	)		35		(14	)		70		—		(31	)		156		(20	)
Total Level 3 assets	$	116	$	(20	)	$	35	$	(14	)	$	70	$	—	$	(31	)	$	156	$	(20	)
Liabilities:
Other liabilities⁽⁴⁾	$	236	$	(65	)	$	—	$	—		$	70	$	—	$	—		$	371	$	(65	)
Total Level 3 liabilities	$	236	$	(65	)	$	—	$	—		$	70	$	—	$	—		$	371	$	(65	)

(1)	Issuances and other settlements amount includes a contingent liability in connection with an acquisition, partially offset by a contingent liability payment in connection with a prior acquisition.

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

(3)	Amounts include investments in CLOs.

(4)	Amounts include contingent liabilities in connection with certain acquisitions and bank loans and borrowings related to the consolidation of one additional CLO.

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 consolidated statements of income. A portion of net income (loss) for consolidated sponsored investment funds 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 carrying value of certain equity method investments no longer represents fair value as determined under valuation methodologies.

Disclosures of Fair Value for Financial Instruments Not Held at Fair Value. At December 31, 2019 and 2018, the fair value of the Company’s financial instruments not held at fair value are categorized in the table below.

	December 31, 2019				December 31, 2018
(in millions)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value		Fair Value Hierarchy
Financial Assets⁽¹⁾:
Cash and cash equivalents	$	4,829	$	4,829	$	6,488	$	6,488	Level 1	^{(2) (3)}
Other assets		68		68		18		18	Level 1	^{(2) (4)}

Financial Liabilities:
Long-term borrowings		4,955		5,254		4,979		5,034	Level 2	⁽⁵⁾

(1)	See Note 5, Investments, for further information on investments not held at fair value.

(2)	Cash and cash equivalents are carried at either cost or amortized cost, which approximates fair value due to their short-term maturities.

(3)

At December 31, 2019 and 2018, approximately $674 million and $173 million of money market funds were recorded within cash and cash equivalents on the 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.

(4)	Other assets include restricted cash and cash collateral deposited with certain derivative counterparties. The carrying values of these assets approximate fair value due to their short-term maturities.

(5)

Long-term borrowings are recorded at amortized cost, net of debt issuance costs. The fair value of the long-term borrowings, including the current portion of long-term borrowings, is determined using market prices at the end of December 2019 and 2018, respectively. See Note 15, Borrowings, for the fair value of each of the Company’s long-term borrowings.

Investments in Certain Entities that Calculate NAV 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 uses 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).

December 31, 2019

(in millions)

Ref

Fair Value

Total

Unfunded

Commitments

Redemption

Frequency

Redemption

Notice Period

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds

(a)

220

120

Daily/Monthly (27%)

Quarterly (15%)

N/R (58%)

1 – 90 days

Private equity funds

(b)

248

212

N/R

Real assets funds

(c)

296

120

Quarterly (57%)

N/R (43%)

60 days

Other

N/R

Consolidated sponsored investment products:

Private equity funds of funds

(d)

N/R

Hedge fund

(a)

—

Quarterly

90 days

Real assets funds

(c)

Total

872

553

December 31, 2018

(in millions)

Ref

Fair Value

Total

Unfunded

Commitments

Redemption

Frequency

Redemption

Notice Period

Equity method:⁽¹⁾

Hedge funds/funds of hedge funds

(a)

173

Daily/Monthly (30%)

Quarterly (18%)

N/R (52%)

1 – 90 days

Private equity funds

(b)

116

N/R

Real assets funds

(c)

353

Quarterly (68%)

N/R (32%)

60 days

Other

Daily (80%)

N/R (20%)

5 days

Consolidated sponsored investment products:

Private equity funds of funds

(d)

N/R

Hedge fund

(a)

—

Quarterly

90 days

Real assets funds

(c)

Total

762

343

N/R – not redeemable

(1)	Comprised of equity method investments, which include investment companies that 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.

(a)

This category includes hedge funds and funds of hedge funds that invest primarily in equities, fixed income securities, distressed credit, opportunistic 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. The liquidation period for the investments in the funds that are not subject to redemption is unknown at both December 31, 2019 and 2018.

(b)

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. The liquidation period for the investments in the funds that are not subject to redemption is unknown at both December 31, 2019 and 2018.

(c)

This category includes several real assets funds that invest directly in real estate, real estate related assets and infrastructure. The fair values of the investments have been estimated using capital accounts representing the Company’s ownership interest in the funds. The Company’s investments that are not subject to redemption or are not currently redeemable are normally returned through distributions as a result of the liquidation of the underlying assets of the funds. The liquidation period for the investments in the funds that are not subject to redemption is unknown at both December 31, 2019 and December 31, 2018. The total remaining unfunded commitments to other third-party funds were $203 million and $130 million at December 31, 2019 and December 31, 2018, respectively. The Company had contractual obligations to the consolidated funds of $172 million and $117 million at December 31, 2019 and 2018, respectively.

(d)

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. The liquidation period for the investments in the funds that are not subject to redemption is unknown at both December 31, 2019 and December 31, 2018. The total remaining unfunded commitments to other third-party funds were $9 million and $18 million at December 31, 2019 and 2018, respectively. The Company had contractual obligations to the consolidated funds of $22 million at both December 31, 2019 and 2018.

Fair Value Option

At December 31, 2019 and 2018, the Company elected the fair value option for certain investments in CLOs of approximately $37 million and $32 million, respectively, reported within investments.

In addition, the Company elected the fair value option for bank loans and borrowings of a consolidated CLO, recorded within investments and other liabilities, respectively. The following table summarizes the information related to these bank loans and borrowings at December 31, 2019 and 2018:

	December 31,		December 31,
(in millions)	2019		2018
CLO Bank loans:
Aggregate principal amounts outstanding	$	204	$	84
Fair value		204		84
Aggregate unpaid principal balance in excess of (less than) fair value	$	—	$	—

CLO Borrowings:
Aggregate principal amounts outstanding	$	195	$	84
Fair value	$	195	$	84

At December 31, 2019, the principal amounts outstanding of the borrowings issued by the CLOs mature in 2030.

During the year ended December 31, 2019 and 2018, the net gains (losses) from the change in fair value of the bank loans and borrowings held by the consolidated CLO were not material and were recorded in net gain (loss) on the consolidated statements of income. The change in fair value of the assets and liabilities included interest income and expense, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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