This month, MFI interviews BNY Mellon Managing Director and Head of Liquidity Services, George Maganas, who is in charge of the firm's money market fund trading "portal," Liquidity Direct. Maganas reviews the history of one of the industry's largest and oldest portals, and BNY's main priorities and biggest challenges going forward. He also discusses the current portal marketplace and how they're working to make "clients' workflow more efficient." Our Q&A follows. (Note: The following is reprinted from the April issue of Money Fund Intelligence, which was published on April 7. Contact us at info@cranedata.com to request the full issue or to subscribe.)
MFI: Give us a little history about the platform and about yourself. Maganas: Liquidity Direct was established as an innovator in the money market fund space over 20 years ago. From the start, our focus was on providing efficiencies for our clients, and for their liquidity management and investment processes. We continue to innovate and provide superior performance for our clients globally. Beyond Liquidity Direct, BNY Mellon's affiliate Dreyfus has been in the money fund manufacturing and distribution business for over 50 years, and we really believe that depth and breadth of experience is evident in our product offering. When you combine the manufacturing, asset servicing and distribution capabilities across our investment management business, the Bank platform and Pershing, you can really see that BNYM is a significant participant that plays a critical role in the money fund industry.
Personally, I've been involved with Liquidity Direct for the past three years, leading our business development activities. Prior to that, I've been in global markets for over 25 years in various roles, from running electronic trading to operating other platform businesses, such as leading an FCM. Prior to this role, my experience with money market funds has been primarily as an end user at an FCM.
MFI: What are your big priorities? Maganas: Firstly, I'd say the pandemic created a very different environment that we've been operating in for the last year. Consequently, our focus has been ensuring that we are here for our clients and more importantly, that they can interact with us in any manner that they choose. We've seen that focus pay off: over the past year, we've experienced record client volumes, well above industry growth. In many ways, the Liquidity Direct portal is a representation of the BNY Mellon ecosystem, and it's quite unique.
To understand that point, it's important to consider that the platform is underpinned by our custody business, with an astonishing $41 trillion of assets under custody. In addition, the portal is directly integrated into our Global Treasury Services businesses, which combines payments, liquidity, trade and finance. So, I think the way that we connect dots and leverage the power of the BNY ecosystem is a valuable proposition and a real differentiator.
Clearly, we're conscious of the environment and that our clients are looking for additional investment options, and we're working hard to exceed those expectations. To give you a great example, we're delighted that on Liquidity Direct we're going to be offering clients the capability to invest their cash in cleared repo via the BNY Mellon sponsored repo program through FICC. This is the first time a liquidity portal has provided its clients with this type of offering and given them the ability to transact directly on the portal. This will give them access to new yield characteristics and exposure to new counterparties. It's an exciting next step for us at Liquidity Direct.
I would also be remiss not to mention the linkage of Liquidity Direct into BNY Mellon's $3 trillion-plus collateral management business, which allows our clients to transform and pledge money market funds as collateral. Money funds as a form of collateral has proven challenging due to a lack of mobility. But with UMR Phase 5 impacting buy-side entities around the globe, clients now have the ability to add money market funds to our triparty platform, incorporate them as an asset class into the cheapest-to-deliver collateral rule-set and enable them to be seamlessly orchestrated by BNY Mellon.
MFI: Tell us about the portal marketplace. Maganas: We continue to see interest in portals, obviously, with more clients moving towards utilizing these types of platforms. What we're seeing is that there's more investment at these venues in capabilities across the spectrum, with a focus on product, analytics, distribution and third party integration, which I think is great news for clients. We're excited about the possibilities on our portal. There's a saying at BNY Mellon, "consider everything," and being a trusted partner underscores the foundation of who we are. We hold that bond with our clients close to our heart and our aim is really to deliver client solutions and solve problems.
So we're working really hard to deliver additional short-term investment options for clients. We want to provide a digital ecosystem across cash, cash equivalents and short-term investments, and create efficiencies for our clients and their liquidity and investment processes. Last year we announced the integration of our client experience with GTreasury, and that is just one recent example of the efficiencies we're focused on delivering. We continue to innovate and look for ways to make sure that our clients' workflow is more efficient and that we are integrated seamlessly into their ecosystem. I think a lot about the challenges clients face with managing data across multiple banking providers, regions, systems, accounts, etc., so a key driver for us is providing a frictionless environment for our clients. Another key area where we're working to enhance our services and analytical tools ... is around providing support to enable them to navigate the investment decision process with ESG analytics and mandates. So, I guess it's fair to say we have a lot on our plate, but we're pretty excited about the roadmap.
MFI: What challenges are you facing? Maganas: Right now the biggest challenge undoubtedly is that the fund companies are contending with the near-term issues presented by interest rates, and the challenge of just meeting the yield needs of clients. And then, obviously the industry is dealing with the impact of low interest rates, resulting in fee waivers. Yield is a big factor and an important one, but we also need to provide our clients with safety and efficiencies. We're really focused on that vertical infrastructure across banking, liquidity and investments. Without that vertical integration, which in my mind is going to become standard, it's going to be very hard to compete. And finally, with the additional set of capabilities that we're adding, it's going to be very important that we make it very efficient for our clients to interact with us.
MFI: What about fee pressure? Maganas: It's pretty public through our announcements to the market, that fee waivers are impacting us, but we have an unwavering commitment to our clients. We've got a long-term view, and a very resilient business model. We're very committed to servicing our clients through all phases of the business cycle. We have been here before -- though maybe not in quite as severe a rate environment -- but even amid this backdrop, we've increased our investment in Liquidity Direct. Yes, it's something that obviously is impacting the industry, but we take more of a long-term view.
MFI: Talk about last March. Maganas: What resonated with me, amongst all the hardship, was the way BNY Mellon mobilized, and really performed the critical function it provides in the financial system, and remained resilient in the face of the global pandemic. When I consider industry growth was around perhaps 20%, our portal saw growth of 50%, which speaks to the trust and scale of our offering. In addition, it reinforced the safety and the value of the money fund asset class during times of stress and it really demonstrated the liquidity and safety it can provide. With regards to prime funds, clearly there was an exogenous shock in the market. Based on the data we're seeing, and the AUM in these instruments, things have normalized somewhat. We've seen some prime fund partners exit the business. However, clients remain committed to the segment. It's clear we're going to see some regulatory reforms down the road, but it's still a $650 billion industry. I remain optimistic we will end up with a viable asset class post-reform.
MFI: Talk about your customer base. Maganas: We support all of the institutional segments that source and use money market funds. We see different characteristics of flows based on the idiosyncrasies of markets and the uses and sources of money funds. Undoubtedly, certain segments were more active during the market volatility. [We saw] a buildup of liquidity in the corporate space, because obviously, corporates were building fortress balance sheets by pulling down on revolvers and through debt issuance.... Beyond corporates, [clients] include governments, states, alternatives, fund managers and insurance companies.
MFI: Are you looking at ultra-short, SMAs? Maganas: We're seeing growth and interest in those sectors. We've got a very deliberate product offering and dedicated clients in that space. What I would say with regard to ultra-shorts is that our affiliates Dreyfus and Insight support these products, and we have great experience in running separately managed accounts. For the Liquidity Direct portal, we have an investment roadmap to expand our offering of short-term investments and that includes ultra-shorts.
MFI: What is your outlook for the future? Maganas: I'd say for the future of money market funds, they're going to continue to be as important as they have always been. Inextricably, they're linked to the financial system and represent a key source of funding to the market. I believe technology is going to impact the way that clients consume and interact with money funds. And with our clients, we're going to continue to reimagine the interaction and evolve the money fund investing ecosystem. Ultimately we're excited: we've got a really comprehensive client agenda this year, both for the portal and in terms of adding short-term investments, and we're really focused on trying to ameliorate some of the pressures our clients are experiencing.
