JULY 2016
MIDDLE MARKET DEBT: THE LONG VIEW GLOBAL OPPORTUNITIES IN PRIVATE CREDIT MARKETS
INVESTMENT ACTIONS
PORTFOLIO DESIGN
RISK MANAGEMENT
REGULATORY
Executive summary } In the era of ultralow interest rates, many institutional investors have gravitated to middle market lending, attracted by the potential of higher-yielding, floating-rate assets with decreased volatility. } Meanwhile, banks have reduced lending to midsize companies, in an effort to shrink their balance sheets and comply with new post-crisis regulations. } We believe this trend is still in its early stages, and that over time it will lead to significant changes in how middle market companies around the world are financed, and in the makeup of credit exposures in institutional portfolios. } While middle market lending presents a global opportunity, there are some significant differences among regional markets, and locally based expertise is a necessity. } In order to achieve their goals, investors need a robust source of deal flow; the ability to structure, execute, monitor and service loans effectively; and a strong platform that can meet the needs of high-quality borrowers. } We believe that middle market lending is moving to the mainstream, and that it will play an increasingly important role for many institutional investors in the years ahead. Steve Sterling Head of BlackRock U.S. Private Capital
Stephan Caron Head of European Middle Market Private Debt
[ 2 ] M I D D L E M A R K E T D E B T: T H E L O N G V I E W
Middle market debt: the long view Global opportunities in private credit
Middle market lending has flourished in the years since the financial crisis. In an era of ultralow interest rates, it’s little wonder that institutional investors have gravitated to the higher yields available on loans to midsize private companies, while accepting the increased risks that come with an illiquid asset class. With banks around the globe reducing the scope of their lending activities, investors have welcomed the opportunity to step in and help fund refinancings, capital expenditures, restructurings and leveraged buyouts. We believe this phenomenon is still in its early stages. For one thing, a look at past instances of post-credit-bubble bank deleveraging indicates that the current process is far from complete, especially given the size of the debt overhang from this most recent crisis. See the chart below. Even after the deleveraging process runs its course, it’s hard to imagine a return to the old status quo. Banks throughout the world are unlikely to ramp up their lending to pre-crisis levels, due to the long-term impact of post-crisis regulations such as Basel III, Dodd-Frank and the Volcker Rule. Banks in the U.S., currently the largest direct lending market, also have to contend with more restrictive guidelines on leveraged lending. Meanwhile, with central banks looking to calm markets after the UK’s surprising vote to exit the EU, investors likely face a low-rate climate for some time to come.
BANK DELEVERAGING TAKES TIME 200%
LOAN/DEPOSITS
160 140 120 100 80 0
2
4
6
8
10
12
14
16
YEARS SINCE CREDIT BUBBLE PEAK Japan (1992)
Investors thus face both immediate and longer-term issues. The most urgent question, of course, is how to add some muchneeded yield and current income to a portfolio in today’s stubbornly low rate climate. Higher-yielding, floating-rate direct loans may be one possible solution to this current conundrum. But with direct loans also potentially headed for a more permanent role in institutional portfolios, it’s important to look beyond the immediate need and understand how direct lending is evolving around the world—and what capabilities investors will need to possess in order to participate as effectively as possible in this structural shift. This paper examines current opportunities within that broader context. First, we trace the growth of the markets and identify opportunities in the U.S. (the pacesetter), Europe (catching up fast) and Asia (poised for takeoff, we believe). We then focus on what we see as some key ingredients for success: investment sourcing and structuring, credit evaluation, portfolio construction and platform strength. Within the diverse global market for direct lending, investors need to be certain that they have access to a broad supply of opportunities, and that they are targeting the regions, industries, and segments of the capital structure that can best meet their objectives. They also need the skills to properly analyze each opportunity and structure each loan. And in an increasingly competitive marketplace, they must possess the capabilities to work with high-quality borrowers throughout the business cycle.
Loan to deposit ratios, post financial crises
60
Clearly then, direct lending represents more than just a window of opportunity. It is, rather, a doorway into a global investment sector that was historically hard for institutional investors to access, but which is now opening up due to structural change in the financial system. Over time we are likely to see significant changes in how middle market companies around the world are financed, and in the makeup of credit exposures in institutional portfolios.
U.S. (Q4 ‘08) UK System (Q4 ‘08) Euro Area (Q4 ‘08) Sweden (1991)
Despite the challenges, we believe that a well-constructed direct lending portfolio can play a useful role for many investors, both now and in the future. In the pages that follow, we show why— and how.
Source: Morgan Stanley, June 2016.
G L O B A L O P P O R T U N I T I E S I N P R I VAT E C R E D I T [3]
The global view
THE U.S.: SETTING THE PACE In the U.S. the capital markets have long been the dominant force in corporate finance, helping give rise to a deep pool of middle market loans. The long history of direct lending in the U.S. also allows today’s investors to examine how the asset class has fared in past credit cycles, including the one that ended with the global financial crisis. Along with serving as a stress test for the market’s legal underpinnings, the crisis led to a tightening of underwriting standards. In its aftermath banks shrank their balance sheets, and low rates prompted renewed institutional flows into private credit. However, the lax underwriting practices of the bubble years (such as covenant-lite loans and payment-in-kind notes) were largely absent. While these practices have since made something of a comeback in broadly syndicated loans, we have not seen them resurface in the middle market. That bodes well, we believe, for the ability of these assets to weather the current cycle. Furthermore, given stubbornly low economic growth and the uncertainties of a post-Brexit world, it appears that we will not soon be exiting the ultralow rate environment, and that the current credit cycle may persist for some time. This backdrop,
HITTING THE WALL Maturing U.S. middle market debt
The dynamics of a late-stage credit cycle and a relatively positive supply-demand picture shape our view of where to find value in U.S. middle markets. They lead us to believe that now is the time to focus on the senior secured part of the capital structure, where banks historically did a great deal of lending, but are now in retreat. They also point to the need to build a broadly diversified portfolio of loans to companies in sectors with positive tailwinds. Along these lines, we currently believe there are attractive opportunities in health care, telecom and media $350 and are maintaining a more cautious stance on the industrial, 300 93 96 manufacturing and energy sectors. 92 250 84 81 83 79 77 71 69 200 234 227 60 204 150 49 166 173 179 188 162 165 157 154 100 128 32 31 50 64 75 LOOKING FOR OPPORTUNITIES 0 Middle market-focused dry powder North ‘03 ‘04 ‘05 ‘06 private ‘07 ‘08equity ‘09 ‘10 ‘11 ‘12 in‘13 ‘14 ‘15 ‘16
100
99
60 40
36
20
16 2017
2018
2019
2020
2021
2022
2023+
Sources: Loan Syndications and Trading Association, Thomson Reuters LPC, December 2015.
[ 4 ] M I D D L E M A R K E T D E B T: T H E L O N G V I E W
150
49
100
128
32 64
31 75 2004
81
83
92
84
96
79 77 71 234 227 60 204 188 166 173 179 162 157 154 165 69
200
0
Europe 93
250
50 3
2016
North America
300
89
81
BILLIONS
BILLIONS
Midsize companies, however, will need a great deal of capital in the years ahead for a variety of reasons, including refinancing their balance sheets and funding new acquisitions. In fact, we estimate that the maturity wall of middle market debt in the U.S. over the next five years is close to $500 billion. Combine this with nearly $230 billion in private equity dry powder waiting to be deployed in the North American middle market, and the funding needs look significant. See the charts below.
$350
111
100
0
As banks reduced both the size of their balance sheets and their holdings of illiquid assets in the years following the financial crisis, private credit became a more important source of capital for many corporations. While the full effects of the new regulations imposed on banks in the post-crisis world remain to be seen, we don’t think that they are likely to recapture anything close to their former share of the direct lending business.
America and Europe
$120
80
together with the supply-demand outlook for the next several years, makes us optimistic about the prospects for direct lending in the U.S.
BILLIONS
The growth of direct lending is being driven by trends both global, such as the rise in private equity capital waiting to be deployed, and local, such as the European Central Bank’s (ECB) quantitative easing program. While direct lending around the globe shares some broad attributes, each region offers unique opportunities that depend upon a host of factors, including the local credit cycle and the way that companies build their capital structures.
2006
2008
2010
2012
2014
2016
Source: Preqin, June 2016. Includes dry powder in North American and European buyout and growth funds with less than $5bn.
EUROPE: GAINING MOMENTUM While the U.S. private credit sector is the most established globally, Europe is catching up fast. In 2015, for the first time, private debt funds investing in Europe raised more capital than those investing in the U.S, and the European direct lending market saw a record number of deals, according to Preqin. As in the U.S., investors are filling the void left by banks’ postcrisis retreat—potentially quite a significant one. See the chart below. The ratio of bank assets to GDP is much higher in the eurozone than it is in the U.S., and European corporations rely on banks for approximately 80% of their financing requirements, according to 2014 estimates from the ECB. Given this reality, we believe that bank deleveraging has a significant way to go in Europe. Meanwhile, demand for loans from European middle market corporates is rising as economic conditions improve. According to 2014 estimates from S&P Capital IQ, European midsize companies will require as much as €2.8 trillion to refinance existing loans and fund new economic activity before the end of 2018. We believe that much of this capital has yet to be raised, and that the mismatch between supply and demand may provide attractive yields for private credit strategies focused on Europe, even as deal competition increases and the credit cycle matures. Spreads, liquidity and default rates across higher-yielding assets in Europe have remained relatively stable so far this year. This is partly due to the continent’s limited exposure to the higher-risk portions of the energy sector. But the bigger story is the ECB’s extraordinary effort to cut borrowing costs, which leads us to believe that the region’s credit cycle has further to expand. With a less advanced credit cycle (and equity cushions of 40% to 50% as of February 2016, according to S&P) Europe offers
LENDING LESS European bank loans outstanding to non-financial corporates €4,800
BILLIONS
4,600 4,400 4,200 4,000
2011
2012
2013
2014
2015
2016
selected opportunities in subordinated debt. But here, too, we prefer to emphasize the more senior parts of the capital structure, and we believe there may be more opportunity within defensive sectors of the economy. Although the interest rate cycle affects the whole of the continent, the European direct lending market is far from homogeneous. The UK has historically been the largest market, and accounted for nearly 40% of all European direct lending deals in the first quarter of 2016, according to Deloitte. However, Germany has the potential to become a significant market due to the prominent role of midsize companies (the Mittelstand) and to increased regulatory pressure on German banks. Furthermore, different sectors, countries and regions are at different points in the credit cycle, and the continent’s fragmented regulations, conventions and jurisdictional nuances add layers of complexity. While the heterogeneous nature of the market provides investors with more opportunities to build diverse portfolios, it also highlights the importance of local knowledge and strategic relationships. When it comes to sourcing deals, it’s hard to overstate the importance of locally based expertise. ASIA: THE NEXT FRONTIER In the past, direct lending opportunities in Asia have been relatively few compared to the U.S. and Europe. That may be about to change, though, as bank disintermediation gathers pace in parts of the region. Thus far, the shift to non-bank lending in Asia has been fairly slow, largely because Asian banks emerged from the global financial crisis with relatively strong capital positions and were able to continue lending to small and midsize companies. As a result, opportunities for institutional investors to step into the fold remained scarce. However, shifting economic conditions are now prompting certain governments to introduce new regulations that will impact the market for bank lending. In India, for example, troubles in some state-owned banks have led the government to pass a broad set of reforms, including a new bankruptcy law to help better protect lenders. At the same time, concerns about valuations and return prospects in Asia’s public and private equity markets are leading investors to consider private credit as a differentiated source of return. While the case for investing in direct loans in Asia is similar to the case for investing in the U.S. and Europe, the opportunity set is significantly different. Because there are fewer deals to invest in, and the deals that do happen tend to be relatively small, a direct lending strategy here may necessitate a wider mixture of senior, junior and mezzanine debt.
Source: ECB, June 2016.
G L O B A L O P P O R T U N I T I E S I N P R I VAT E C R E D I T [5]
The investment process Having an informed view on where to invest—across regions, industries and the capital structure—is a prerequisite for success in direct lending. But knowing how to invest in an illiquid and idiosyncratic asset class is the real challenge. See the chart below. In order to achieve their goals, we believe that investors must possess three things: } A robust, multi-channel sourcing network into the middle markets. } A rigorous due-diligence process, coupled with the ability to structure, execute, monitor and service loans effectively. } A strong and diverse platform that can meet the needs of high-quality borrowers. To begin, managers need to have access to a large and robust pool of potential investments, in order to recognize which opportunities present the most compelling risk-reward profiles—and which are best left alone. In practice, we believe managers should be very selective, and invest in only a low percentage of the opportunities that they review.
Building such a pipeline involves cultivating relationships with middle market companies, with the private equity firms that often sponsor them, and with the intermediaries that are still involved in capacities such as arranging super-senior financing or ancillary investment banking services. It is our belief that successfully developing these relationships requires managers to act as patient providers of long-term capital and not as purely opportunistic lenders. In addition to helping build higher-quality portfolios and avoiding adverse selection, having access to a deeper pool of investment opportunities can allow managers to deploy their capital at a more rapid pace, thereby helping to ensure that clients are getting the exposure they seek within a reasonable time frame. As competition for middle market loans has picked up in recent years, this ability to put capital to work in a timely fashion has taken on increasing importance. Once managers have sifted through the universe of potential investments and settled upon the companies that they may wish to lend to, they must perform a comprehensive analysis before
MUCH TO DO IN THE MIDDLE Illustrative process for investing in middle market loans
Source and originate debt
Screen deals
} L everage relationships } Conduct analysis of company and with private equity, industry dynamics accounting and advisory firms } Evaluate quality of management } Access company management and } Analyze financials industry participants and capital structure } Utilize relationships } Take jurisdictional with banks and considerations into specialty finance account companies } Follow comprehensive underwriting process
Due diligence and structuring } F urther research company, business model and growth prospects } A nalyze financial, operational, legal and tax information } D ue diligence with management, consultants, industry participants and regulators } C onsider deal structuring, pricing and downside scenarios
Source: BlackRock, June 2016. For illustrative purposes only, subject to change.
[ 6 ] M I D D L E M A R K E T D E B T: T H E L O N G V I E W
Investment approval } D ebate investment decision rationale, focusing on downside risk, risk-adjusted returns and suitability } F inalize terms and covenants, including detailed legal documentation with focus on contractual protection and covenants } N egotiate intercreditor document } C lose and fund investment
Monitor and manage risk } A ctively monitor against expectations, business plan and covenants } M eet regularly with management to review performance } M aintain credit watch list } U se maintenance covenants and contractual rights to preserve value in underperforming credits } P articipate in any work-out scenarios and take control if necessary
structuring any loans. In the direct lending world, this starts with gaining firsthand knowledge of the business model of each firm, so as to understand its addressable market and competitive advantages, among other factors. But managers need more than just hands-on experience with a company. They need direct access to a borrower’s entire ecosystem, from suppliers and customers to competitors and regulators. Compared to investing in broadly syndicated loans, lending to middle market companies requires managers to conduct a far more comprehensive and time-intensive due diligence process. However, this process can lay the groundwork for a deep understanding of the credit, paving the way for valuable customization of loans by securing stronger covenants, lower loan-to-value ratios and other investor protections. A strong pipeline into the middle market ecosystem and the skills to perform complex, multisector analysis are the core requirements for success in direct lending. But as competition for prime lending opportunities has increased in recent years, another requirement has come to the fore: the necessity of having a broad platform that can meet the demands of highquality borrowers, many of whom now have the luxury of choosing from several potential lenders. From our experience in partnering with such borrowers, we believe that they are looking for three key things from their lenders: consistency, reliability and relevance. Consistency means that lenders need to be long-term investors in the middle market, as opposed to opportunists that move into the space only when yields look particularly attractive. Reliability has to do with lenders’ ability to serve as constructive investors from inception to exit, and to their willingness to take a partnership approach to dealing with unexpected events both favorable (e.g., above-plan growth) and unfavorable (e.g., tripping a covenant). Finally, in order to be viewed as relevant, lenders must be able to bring meaningful capital to the market, and they need to be prepared to provide borrowers with holistic solutions that can span the capital structure and the lifecycle of the company. Getting all of the above right is critical to helping mitigate defaults and to maximizing recovery rates when they do occur. As in liquid markets, investors must accept that a certain percentage of sub-investment-grade companies will run into trouble at some point and that defaults do happen, particularly during the latter stages of the credit cycle. It is therefore imperative that direct lending managers also have the skills to handle workouts by helping to restructure a company, and, as a last resort, to take control when necessary in order to maximize recovery of client capital.
In default situations, investors are, of course, concerned with recovery rates. While it is difficult to come by authoritative data that captures default and recovery rates across the middle market universe, in our experience, the rates are comparable to those on some larger and more liquid asset classes, such as broadly syndicated loans and high yield bonds. While it may seem counterintuitive that direct loans to smaller companies may exhibit fewer defaults and stronger recovery rates than loans to larger companies, there is a reason for this phenomenon. Since lenders are investing in illiquid assets that are meant to be held to maturity, they are able to dictate stronger covenants and more conservative capital structures, which tend to put them in a better position should companies hit hard times. And because the loans are either bilateral or involve a small club of lenders, lenders to middle market companies can also exert significant influence on workout scenarios. This is not the case in broadly syndicated transactions, which potentially involve dozens of lenders with sometimes competing agendas. A MOVE TO THE MAINSTREAM Clearly, much is required for success in the realm of direct lending. But much can also be gained. In a world that is characterized by extremely low rates, but where macro policies are starting to diverge, assets that carry both higher yields and floating rates look attractive. Add in the inflation mitigation that comes with floating rates and the lower volatility that illiquid assets may exhibit, and we see an asset class that can provide value throughout economic and market cycles. Given that midsize firms’ ongoing move away from bank financing likely represents a permanent structural shift, we believe that direct lending will gradually become mainstream for many investors. For those institutions that are willing to accept some illiquidity in their core fixed income portfolios, senior secured loans can prove complementary when added to traditional holdings. For other institutions, and for those investing in junior debt, the alternatives portfolio may be a more appropriate home for middle market loans. But regardless of where they fit into the portfolio, we expect that, in the years ahead, a variety of institutions—from pensions to endowments to insurers—will increase their allocations to middle market debt as they seek income opportunities no longer available in more traditional assets.
G L O B A L O P P O R T U N I T I E S I N P R I VAT E C R E D I T [7]
WHY BLACKROCK® BlackRock helps people around the world, as well as the world’s largest institutions and governments, pursue their investing goals. We offer: } A comprehensive set of innovative solutions, including mutual funds, separately managed accounts, alternatives and iShares® ETFs } Global market and investment insights } Sophisticated risk and portfolio analytics We work only for our clients, who have entrusted us with managing $4.73 trillion, earning BlackRock the distinction of being trusted to manage more money than any other investment firm in the world.* * Source: BlackRock. Based on $4.73 trillion in AUM as of 3/31/16.
Want to know more?
blackrock.com
FOR PROFESSIONAL/INSTITUTIONAL CLIENTS AND QUALIFIED INVESTORS/PURCHASERS ONLY This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of July 2016 and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. In the EU issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Conduct Authority). Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. This material is for distribution to Professional Clients (as defined by the FCA Rules) and Qualified Investors and should not be relied upon by any other persons. For qualified investors in Switzerland, this material shall be exclusively made available to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006, as amended. Issued in Australia and New Zealand by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL) for the exclusive use of the recipient who warrants by receipt of this material that they are a wholesale client and not a retail client as those terms are defined under the Australian Corporations Act 2001 (Cth) and the New Zealand Financial Advisers Act 2008 respectively. This material contains general information only and does not constitute financial product advice. This material has been prepared without taking into account any person’s objectives, financial situation or needs. Before making any investment decision based on this material, a person should assess whether the information is appropriate having regard to the person’s objectives, financial situation and needs and consult their financial, tax, legal, accounting or other professional advisor about the information contained in this material. This material is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is the issuer of financial products and acts as an investment manager in Australia. BIMAL does not offer financial products to persons in New Zealand who are retail investors (as that term is defined in the Financial Markets Conduct Act 2013 (FMCA)). This material does not constitute or relate to such an offer. To the extent that this material does constitute or relate to such an offer of financial products, the offer is only made to, and capable of acceptance by, persons in New Zealand who are wholesale investors (as that term is defined in the FMCA). BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. This material has not been prepared specifically for Australian or New Zealand investors. It may contain references to dollar amounts which are not Australian or New Zealand dollars and may contain financial information which is not prepared in accordance with Australian or New Zealand law or practices. BIMAL, its officers, employees and agents believe that the information in this material and the sources on which the information is based (which may be sourced from third parties) are correct as at the date specified in this material. While every care has been taken in the preparation of this material, no warranty of accuracy or reliability is given and no responsibility for this information is accepted by BIMAL, its officers, employees or agents. Except where contrary to law, BIMAL excludes all liability for this information. Past performance is not a reliable indicator of future performance. Investing involves risk including loss of principal. No guarantee as to the capital value of investments nor future returns is made by BIMAL or any company in the BlackRock Group. In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N) for use only with institutional investors as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. This material is for distribution to “Professional Investors” (as defined in the Securities and Futures Ordinance (Cap.571 of the laws of Hong Kong) and any rules made under that ordinance) and should not be relied upon by any other persons or redistributed to retail clients in Hong Kong. In Korea, this material is for Professional Investors only (or “professional clients”, as such term may apply in local jurisdictions). Investments involve risks. Past performance is not a guide to future performance. This material is intended for information purposes only and does not constitute investment advice or an offer or solicitation to purchase or sell in any securities, BlackRock funds or any investment strategy nor shall any securities be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. In Japan, this is issued by BlackRock Japan. Co., Ltd. (Financial Instruments Business Operator: The Kanto Regional Financial Bureau. License No375, Association Memberships: Japan Investment Advisers Association, The Investment Trusts Association, Japan, Japan Securities Dealers Association, Type II Financial Instruments Firms Association.) for Professional Investors only (Professional Investor is defined in Financial Instruments and Exchange Act) and for information or educational purposes only, and does not constitute investment advice or an offer or solicitation to purchase or sells in any securities or any investment strategies. In Taiwan, independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28/F, No. 95, Tun Hwa South Road, Section 2, Taipei 106, Taiwan. Tel: (02)23261600. In Canada, this material is intended for permitted clients only. In Latin America and Iberia, this material is for educational purposes only and does not constitute investment advice nor an offer or solicitation to sell or a solicitation of an offer to buy any shares of any fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that some or all of the funds have not been registered with the securities regulator of Brazil, Chile, Colombia, Mexico, Panama, Peru, Portugal, Spain, Uruguay or any other securities regulator in any Latin American country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets. © 2016 BlackRock, Inc. All rights reserved. BLACKROCK and iSHARES are registered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are the property of their respective owners. Not FDIC Insured • May Lose Value • No Bank Guarantee Lit. No INST-MMD-716US
169346T-INST/UIM-0403
