BlackRock, the 5th largest money fund manager in the U.S. with $162 billion and the 2nd largest manager of "offshore" money market funds with $84 billion (according to our most recent Money Fund Intelligence XLS and MFI International), reported its latest quarterly earnings yesterday and hosted a conference call to discuss the results. The company's Q1 2011 release says of its money markets, "Cash management products continued to face challenging overall market conditions. Cash management experienced net withdrawals of $24.4 billion largely reflecting institutional reaction to the continued low rate environment with particular pressure related to concerns around European sovereigns and their respective banks. Modest inflows in Asia were more than offset by net outflows of $23.1 billion in the Americas and $1.3 billion in EMEA. We anticipate continued pressure as rates are expected to remain low for the next several quarters."

The statement adds, "Investment advisory, administration fees and securities lending revenue of $1,984 million in first quarter 2011 increased $231 million, or 13%, compared to $1,753 million in first quarter 2010, primarily related to growth in long-term AUM, which reflected the benefit of both net new business and market appreciation on long-term AUM during the prior twelve months, partially offset by a decline in fees from cash management products due to lower average AUM."

Laurence Fink, Chairman and CEO of BlackRock, says on the call, "Long-term flows, as Ann Marie stated, grew by close to $35 billion. This has been offset by an outflow of $24 billion in our Cash Management business. Our flows are representative of the industry. With the shortage of short-term treasuries, we see rates below five basis points. This is a business that will continue to flounder during these low rate environments. We are constructive about it. We, actually, in the first quarter though saw positive flows in the institutional side, and we saw very large negative flows more on the retail side."

He continues, "So we are building our market share in terms of institutional, and it's not representative with our gross $24 billion in our outflows in cash. But we are building market share institutionally and we are certainly seeing some substantial wind-downs in the retail side. And much of this is because in many cases, the retail platforms are migrating from money market funds to bank deposits. Bank deposits are higher in yield than money market funds, even at a time when banks are having a little success in terms of C&I loans. They may be using the deposit for buying short-term Treasuries or mortgage securities, but they're willing to pay more than money markets can afford. So that trend is not going to change anytime soon."

Fink adds, "And so this is going to be an area that will have a drag on our flows, albeit this is low-fee business. What I'm trying to stress is the revenue from the very, very high-fee businesses that we are demonstrating." Note that there were no questions on money market funds during the Q&A session.

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