BlackRock, the 7th largest manager of U.S. money funds with $140.4 billion and the 2nd largest manager of "offshore" money funds with $87.7 billion (according to Crane Data's Money Fund Intelligence XLS and MFI International, respectively), reported third quarter 2011 earnings yesterday. As usual, the company's management made a couple of comments on the money market mutual fund business during the conference call's Q&A section. BlackRock Chairman & CEO Larry Fink responded to one question, "We are actually having some very really good dialogue with the regulators. We are trying to be above the line with them and really working with them in helping them understand the difference between asset management and organizations that work on their own balance sheet.... We have been very rigorous, and an outlier in the money market fund industry, in terms of suggesting that capital should be put in to place to buffer any NAV declines."
He explained, "We do believe regulators are going to begin to focus on the money market fund industry.... [T]hey believe money market funds do present risk in the system, and there's going to have to be some ways of protecting the system. We are trying to work with regulators in terms understanding the type of risk that is being presented and the best to effectuate and minimize that risk."
Fink added, "In terms of our everyday business, until we get more dialogue and more certainty on how they are going to implement some of these strategies, it's hard for us to say how that will further impact BlackRock or how we work with our clients. It is a moving dialogue and I can promise you we are involved in the dialogues with the regulators. When they want to hear our opinions, we are offering them a loud as possible. I think as you know, we do have an office now in Washington working alongside regulators we have one of our biggest business working in Washington.... We are one of the lone sheep working in Washington in trying to protect investors' rights."
Bill Katz of CitiGroup asked, "What I'm hearing is that the Squam Lake proposal seems to be dead on arrival, so we're back to the drawing board.... How do you see the most likely course for reform going forward and what would be the impact on the economics of the business?"
BlackRock CFO Ann Marie Petach answered, "On the Money Market Reform as you know, we have been going back and forth around a variety of possibilities. The Squam Lake proposal is one that is interesting, although I think the discussions on it most recently have focused on whether or not it is really practical, given that it requires subordinating capital to be raised for each fund, for each issuer. At the same time we are not really hearing that a capital buffer is favored either."
She added, "So I think regulators are still engaged in an active discussion with industry participants, and we are very much at the forefront of that. We have been helping think through different alternatives for how we might support this business. And as you know, and as Mary Shapiro testified before the Congress, the floating rate NAV is still out there as a possibility as well. If that comes to pass, the business will find a new level but it will still be a valuable business for investors. We continue to work with them, but there is not a lot of clarity out there."
