In one of the largest acquisitions ever in the money market fund space, BlackRock announced that it was taking over management of BofA Global Capital's cash business. BofA Funds is the 14th largest manager of money market fund assets that we track with $48.3 billion -- and according to BlackRock's press release announcing the move, has $87 billion in total cash assets under management. Prior to this transaction, the largest money fund mergers in the past included both BlackRock's merger with Merrill Lynch Investment Management in 2006 and BlackRock's merger with Barclays Global Investors in 2009. (See our Dec. 2, 2009 News, "Merged BlackRock, BGI Form World's 3rd Largest Money Fund Manager.") When the BofA transaction is complete, BlackRock will become the second largest manager of money fund assets with about $370 billion in AUM, jumping ahead of now No. 2-ranked JP Morgan.
The press release, entitled, "BlackRock's Cash Management Platform to Grow to Over $370 billion of AUM through Transaction with Bank of America's BofA Global Capital Management's Asset Management Business," says, "BlackRock, Inc. and Bank of America's asset management business, BofA Global Capital Management have entered an agreement to transfer investment management responsibilities of approximately $87 billion of AUM currently managed by BofA Global Capital Management to BlackRock. Through BofA, clients currently have access to a suite of taxable and tax-exempt money market funds; a U.S. dollar offshore fund; and customized separate account strategies."
It explains, "The transaction will combine BlackRock's global cash management expertise and product suite with the strength of BofA Global Capital Management's client relationships, resulting in a platform of high quality, global liquidity investment solutions accessible to a broader spectrum of clients. Upon closing, BlackRock's global cash management platform is expected grow to approximately $372 billion in assets under management, based on current asset levels. BlackRock will continue to enjoy a strong distribution partnership with Bank of America and will have expanded access to several broad distribution channels."
Tom Callahan, BlackRock's Co-head of global cash management, comments, "Expanding our partnership with Bank of America presents a tremendous growth opportunity for BlackRock's cash management business. This partnership allows us to further leverage our global scale, comprehensive product suite and best in class risk management capabilities to serve a new universe of clients.... At a time of tremendous change in the cash management industry, this alliance underscores BlackRock's commitment to market leadership in delivering outstanding liquidity solutions to our clients."
Rich Hoerner, also BlackRock Co-head of global cash management, says, "BlackRock and existing BofA Global Capital Management clients will benefit from a combined platform with greater scale and global reach. Additional scale will better enable BlackRock to continue to manage client balances of various sizes and investment time horizons."
BofA Global Capital Management President Michael Pelzar adds, "BlackRock is a best-in-class liquidity solutions provider with a demonstrated ability to deliver on clients' needs for liquidity and yield. Our selection of BlackRock was made after careful consideration of our clients' needs, our long-standing relationship with BlackRock, and their demonstrated ability to provide a comprehensive range of global liquidity management solutions."
The release adds, "Both BlackRock and BofA Global Capital Management are fully committed to continuing excellent service for BofA Global Capital Management's cash management clients and will work in partnership to ensure a seamless transition. The transaction is expected to close in the first half of 2016 and is subject to fund boards, BofA Global Capital Management's fund shareholders and regulatory approvals. The financial impact of the transaction is not material to BlackRock earnings. Terms were not disclosed."
Callahan explained in an interview with Crane Data's Peter Crane, "I think you understand the economics and the dynamics facing the cash management [space] better than anyone.... This transaction extends from a longstanding very strong relationship between BlackRock and Bank of America that goes back to the MLIM merger.... With the dynamics that are currently facing the cash industry through regulatory reform, it's an environment where scale matters -- scale in terms of leveraging infrastructure in a highly regulated industry that is faced with rising costs due to money fund compliance, scale in terms of the industry competing for a rapidly shrinking pool of money fund market supply and rapidly contracting repo lines, and scale in terms of having the size and diversity in our funds to facilitate the large liquidity needs of our clients."
He added, "Many in the market have forecasted that there would be consolidation in a meaningful way as a result of money fund reform, and that's exactly where we are. We're incredibly excited about this transaction. It puts us in partnership with one of the largest premier global banks. [With] the specter of Basel III looming and many banks needing to move large blocks of cash off their balance sheets, being closely aligned with Bank of America puts us in an incredibly strong position. From the client's perspective, this gives both Bank of America and BlackRock Cash clients access to an industry-leading global product suite.... In a business where scale is vital... it just makes our funds that much larger and more diversified, which gives us greater capacity to manage the liquidity needs of our clients."
BofA hadn't made any announcements regarding its post-MMF reform plans prior to the news of the BlackRock acquisition, but BlackRock has commented on its plans. (See our July 31 News, "BlackRock to Liquidate 3 Muni MMFs, Convert Old Merrill Primes to Govt.) According to our Money Fund Intelligence XLS, BofA's largest portfolio is the BofA Money Market Reserve at about $16 billion. It also has the BofA Cash Reserves portfolio (at one time the world's largest money fund under the Nations Cash Reserves moniker) which now has around $7.2 billion. Also, BofA Government Reserves has about $4.1 billion, Govt Plus Reserve has $2.3 billion, and Treasury Reserves has about $7.8 billion.
This news accelerates the trend towards consolidation that we've seen over the past several years. Earlier but smaller transactions include: Federated's acquisition of Reich & Tang's and Huntington's money businesses and Dreyfus acquiring the bulk of Touchstone's money market funds. `But the BlackRock purchase of BofA is by far the largest splash yet. We have also seen a parade of smaller companies exit the money fund space since reforms were announced. See our Oct. 29 News, "Pioneer, Nationwide Converting Prime to Govt; 2 More Exit MMF Space," and August 17 News, "Another Muni Money Fund Liquidates: A Recap of Recent Expirations."
Currently we track 68 money fund managers, down from 74 on July 31, 2014, just after money fund reforms were adopted. Since then we have also seen Williams Capital, Forward Funds, Alpine, Virtus, RBB, and Eaton Vance exit the space. When you add impending departures William Blair and Delaware, along with BofA, we're down to 65 money fund managers. (For more on money fund complex changes, read our story from July, "Managers Rolling with Reform Changes; Recap of Announcements So Far," and see our November Money Fund Intelligence, which ships Friday.)
