net
operating expenses, including any 12b-1 or non-12b-1 service fees. The total
expense ratio gives effect to any expense reimbursements or fee waivers, and the
actual management
fee rate gives effect to any management fee reimbursements or waivers. The Board
considered that the fee and expense information in the Broadridge report
for
the Fund reflected information for a specific period and that historical asset
levels and expenses may differ from current levels, particularly in a period of
market volatility. The
Board also noted that while it found the expense comparison provided by
Broadridge generally useful, it recognized that the comparison is subject to
Broadridge’s defined
peer selection criteria and methodology. The Board considered the services
provided and the fees charged by BlackRock and its affiliates to other types of
clients with similar
investment mandates, as applicable, including institutional accounts and
sub-advised mutual funds (including mutual funds sponsored by third
parties).
The
Board reviewed BlackRock’s profitability methodology and was also provided
with an estimated profitability analysis that detailed the revenues earned and
the expenses
incurred by BlackRock for services provided to the Fund. The Board reviewed
BlackRock’s estimated profitability with respect to the Fund and other funds the
Board
currently oversees for the year ended December 31, 2024 compared to available
aggregate estimated profitability data provided for the prior two years. The
Board reviewed
BlackRock’s estimated profitability with respect to certain other U.S. fund
complexes managed by the Manager and/or its affiliates. The Board reviewed
BlackRock’s
assumptions and methodology of allocating expenses in the estimated
profitability analysis, noting the inherent limitations in allocating costs
among various advisory
products. The Board recognized that profitability may be affected by numerous
factors including, among other things, fee waivers and expense reimbursements
by
the Manager, the types of funds managed, precision of expense allocations and
business mix. The Board thus recognized the limitations of calculating and
comparing profitability
at the individual fund level.
The
Board received and reviewed statements relating to BlackRock’s financial
condition. The Board reviewed BlackRock’s overall operating margin, in general,
compared to
that of certain other publicly traded asset management firms. The Board
considered the differences between BlackRock and these other firms, including
the contribution of
BlackRock’s technology business, BlackRock’s expense management, and the
relative product mix. The Board noted that, in general, individual fund or
product line profitability
of other advisors is not publicly available.
The
Board considered whether BlackRock has the financial resources necessary to
attract and retain high quality investment management personnel to perform its
obligations
under the Agreements and to continue to provide the high quality of services
that is expected by the Board. The Board further considered factors including
but not
limited to BlackRock’s commitment of time and resources, assumption of risk, and
liability profile in servicing the Fund, including in contrast to what is
required of BlackRock
with respect to other products with similar investment mandates across the
open-end fund, ETF, closed-end fund, sub-advised mutual fund, separately managed
account,
collective investment trust, and institutional separate account product
channels, as applicable.
The
Board noted that the Fund’s contractual management fee rate ranked in the
third quartile, and that the actual management fee rate and total expense
ratio ranked in the
third and second quartiles, respectively, relative to the Fund’s Expense Peers.
The Board also noted that the Fund has an advisory fee arrangement that includes
breakpoints
that adjust the fee rate downward as the size of the Fund increases above
certain contractually specified levels. The Board additionally noted that the
breakpoints
can, conversely, adjust the advisory fee rate upward as the size of the Fund
decreases below certain contractually specified levels.
The
Board, including the Independent Board Members, considered the extent to which
any economies of scale might benefit the Fund in a variety of ways as the assets
of
the Fund increase. The Board considered multiple factors, including the advisory
fee rate and breakpoints, unitary fee structure, fee waivers, and/or expense
caps, as applicable.
The Board considered the Fund’s asset levels and whether the current fee
schedule was appropriate.
E.
Other Factors Deemed Relevant by the Board Members
The
Board, including the Independent Board Members, also took into account other
ancillary or “fall-out” benefits that BlackRock or its affiliates may
derive from BlackRock’s respective
relationships with the Fund, both tangible and intangible, such as BlackRock’s
ability to leverage its investment professionals who manage other portfolios and
its
risk management personnel, an increase in BlackRock’s profile in the investment
advisory community, and the engagement of BlackRock’s affiliates as service
providers to
the Fund, including for administrative, distribution, securities lending, ETF
servicing and cash management services. With respect to securities lending,
during the year the
Board also considered information provided by independent third-party
consultants related to the performance of each BlackRock affiliate as securities
lending agent. The
Board also considered BlackRock’s overall operations and its efforts to expand
the scale of, and improve the quality of, its operations. The Board also noted
that, subject to
applicable law, BlackRock may use and benefit from third-party research obtained
by soft dollars generated by certain registered fund transactions to assist in
managing all or a
number of its other client accounts.
In
connection with its consideration of the Agreements, the Board also received
information regarding BlackRock’s brokerage and soft dollar practices. The
Board received reports from
BlackRock which included information on brokerage commissions and trade
execution practices throughout the year.
The
Board noted the competitive nature of the ETF marketplace, and that shareholders
are able to redeem or sell their Fund shares if they believe that the Fund’s
fees and expenses are
too high or if they are dissatisfied with the performance of the
Fund.
At
the June Meeting, in a continuation of the discussions that occurred during the
May Meeting, and as a culmination of the Board’s year-long deliberative process,
the Board,
including the Independent Board Members, unanimously approved the continuation
of the Advisory Agreement between the Manager and the Trust, on behalf of the
Fund,
for a one-year term ending June 30, 2026, and the Sub-Advisory Agreement between
the Manager and the Sub-Advisor, with respect to the Fund, for a one-year term
ending
June 30, 2026. Based upon its evaluation of all of the aforementioned factors in
their totality, as well as other information, the Board, including the
Independent Board Members,
was satisfied that the terms of the Agreements were fair and reasonable and in
the best interest of the Fund and its shareholders. In arriving at its decision
to
