6. Variable Interest Entities

In the normal course of business, the Company is the manager of various types of sponsored investment vehicles, including 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 generally is limited to its equity interests.

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 several investment funds, which absorbed the majority of the variability due to their 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, 2012 and December 31, 2011, the following balances related to VIEs were consolidated on the Company’s condensed consolidated statements of financial condition:


(Dollar amounts in millions)	September 30, 2012			December 31, 2011
Assets of consolidated VIEs:
Cash and cash equivalents	$	292		$	54
Bank loans		1,495			1,459
Bonds		125			145
Other investments		63			35

Total bank loans, bonds and other investments		1,683			1,639
Liabilities of consolidated VIEs:
Borrowings		(1,843	)		(1,574	)
Other liabilities		(9	)		(9	)
Appropriated retained earnings		(56	)		(72	)
Non-controlling interests of consolidated VIEs		(54	)		(38	)

Total net interests in consolidated VIEs	$	13		$	—

For the three months ended September 30, 2012 and 2011, the Company recorded a non-operating gain of $2 million and non-operating loss of $16 million, respectively, offset by a $2 million net gain and a $16 million net loss attributable to nonredeemable non-controlling interests on the Company’s condensed consolidated statements of income.

For the nine months ended September 30, 2012 and 2011, the Company recorded a non-operating gain of $1 million and a non-operating loss of $36 million, respectively, offset by a $1 million and a $36 million net gain and net loss attributable to nonredeemable non-controlling interests, respectively, on the Company’s condensed consolidated statements of income.

At September 30, 2012 and December 31, 2011 the weighted-average maturities of the bank loans and bonds were approximately 4.2 years.

Non-Consolidated VIEs. At September 30, 2012 and December 31, 2011, the Company’s carrying value of assets and liabilities and its maximum risk of loss related to VIEs for which it is the sponsor or in which it holds a variable interest but for which it was not the PB, were as follows:

At September 30, 2012


	Variable Interests on the Condensed Consolidated Statement of Financial Condition
(Dollar amounts in millions)	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)			Maximum Risk of Loss
CDOs/CLOs	$	1	$	3	($	4	)	$	21
Other sponsored investment funds:
Collective trusts		—		186		—			186
Other		17		63		—			80

Total	$	18	$	252	($	4	)	$	287

At December 31, 2011


	Variable Interests on the Condensed Consolidated Statement of Financial Condition
(Dollar amounts in millions)	Investments		Advisory Fee Receivables		Other Net Assets (Liabilities)			Maximum Risk of Loss
CDOs/CLOs	$	1	$	2	($	3	)	$	20
Other sponsored investment funds:
Collective trusts		—		184		—			184
Other		18		54		(5	)		72

Total	$	19	$	240	($	8	)	$	276

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


(Dollar amounts in billions)	September 30, 2012			December 31, 2011
Assets at fair value	$	5		$	5
Liabilities⁽¹⁾		7			7

Net assets	($	2	)	($	2	)

⁽¹⁾	Amounts primarily comprised of unpaid principal debt obligations to CDO/CLO debt holders.

Other sponsored investments funds. Net assets of other sponsored investment funds approximate $1.4 trillion to $1.5 trillion at September 30, 2012 and $1.2 trillion to $1.3 trillion at December 31, 2011. Net assets included $1.2 trillion and $1.0 trillion of collective trusts at September 30, 2012 and December 31, 2011, respectively. Each collective trust has been aggregated separately and may include collective trusts that invest in other collective trusts. The net assets of these VIEs primarily are comprised of cash and cash equivalents and investments offset by liabilities primarily comprised of various accruals for the sponsored investment vehicles.

Maximum risk of loss. At both September 30, 2012 and December 31, 2011, BlackRock’s maximum risk of loss associated with these VIEs primarily relates 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.