On the company's quarterly earnings conference call yesterday, BlackRock Chairman and CEO Laurence D. Fink said money fund flows industry-wide "have been particularly hampered and harmed because of FDIC-insured products as a competitive product". Fink discussed the fifth-largest money fund manager's results, which are heavily influenced by cash, and also weighed in upon several other issues impacting the money fund marketplace.
The company's press release said, "Asset reallocation by both institutional and retail investors drove outflows in money market funds industry-wide. BlackRock's cash management AUM ended the quarter at $290.4 billion, down $26.3 billion or 8%. Average assets declined 6% relative to the second quarter. U.S. clients accounted for $30.1 billion of net outflows, which were partially offset by $3.7 billion of net inflows from international investors. Outflows were proportional to our client base, with $23.5 billion from institutional clients and $2.9 billion from retail investors globally. With yields at exceptionally low levels, we would expect continued pressure on money market flows."
Overall money market mutual fund assets decreased by $274.38 billion, or 7.9%, in the third quarter, but they have increased by 3.5% over the past 12 months, according to Crane Data's Money Fund Intelligence XLS. (Our data surveys show BlackRock's U.S. money fund assets declining by 6.5%, or $14.39 billion, over the past 12 months.)
Fink commented on the conference call, "We saw a huge hoarding of cash [last year].... Beginning in the second quarter, clients would begin to look for opportunities to earn more than zero.... In terms of asset flows in the 2nd quarter, clients are starting to move out of cash and into alternative investments. We never expected to receive dollar for dollar of outflows out of cash into longer-dated flows. We are pleased with the mix of our businesses.... But I don't want to suggest that we are not trying to stem and stabilize some of the outflows that we are seeing in our liquidity funds."
He continued, "Liquidity funds are seeing outflows industry-wide. Much of if has to do with banks offering FDIC insured rates at returns above zero.... If you can earn 96 basis points as a bank, and if you can attract deposits at 25 basis points or something close to that, it's more attractive than close to zero for a lot of people. So in many cases we are seeing the outflows in the retail spaces where clients are aggressively moving into these FDIC products. I think this is going to continue for a while. This is an industry issue, and I think we're going to have that drag for some time."
Finally, during the Q&A, Fink said investors previously had had "an under-appreciation of having liquidity-larger component of short-term". He added, "We are continuing to see clients repositioning themselves to have better liquidity.... I don't think you're going to see total outflows from liquidity, but I think you could continue to see some large flows into riskier assets.... On the retail side, clearly you're seeing people migrate out of MMFs, because of the fees, into FDIC insured products because of guarantee. The banks because of the yield curve are able to offer some yield. When the Fed stats raising rates, thats when you will see flows back to MMFs."
