BlackRock recently launched a new Treasury (and repo) money market fund, Circle Reserve Fund, exclusively for Circle Internet Financial, which offers one of the largest stablecoins, USDC. The fund, with ticker USDXX (for its Institutional Shares), was launched on November 3, and has already grown to a hefty $12.8 billion. It has an expense ratio of 0.21% (0.17% after waivers), a minimum initial investment of $2 billion, a WAM (weighted average maturity) of 41 days and a 7-day yield of 3.84% (as of 11/29). BlackRock is the Manager and Distributor, while BNY Mellon is the Custodian and Accounting Services Provider, according to the fund's N-1A registration filing. USDC is approximately $43.9 billion in size, while the largest stablecoin, Tether, is $65.9 billion (though the latter has been decreasing of late). (See too today's Wall Street Journal story, "Rising Tether Loans Add Risk to Stablecoin, Crypto World.")
An article from Coindesk, entitled, "Circle Begins Putting Reserves Into New BlackRock Fund," explains, "Circle Internet Financial has begun moving the reserves for its USDC stablecoin into a dedicated fund set up by BlackRock and registered with the U.S. Securities and Exchange Commission, the company disclosed.... The Circle Reserve Fund -- a government money market fund managed by BlackRock Advisors -- has been in the works for months after BlackRock initially sought to register it in May. Circle will be its only eligible investor, and the stablecoin issuer has already started putting its reserves there, expecting to be 'fully transitioned' by the end of March."
It says, "All of the company's short-term Treasury assets will be phased into the fund, though the cash reserve -- about 20% of the total -- will still be held in partner banks, [CFO Jeremy] Fox-Geen said, because it allows for customers to more easily redeem USDC around the clock. `But that's a temporary measure, he explained, because the ultimate goal is for BlackRock to apply -- in time -- to get the fund into the Federal Reserve's reverse-repo program.... These efforts will 'improve the risk profile and oversight and the disclosures around USDC reserve,' he said."
CoinDesk adds, "The current circulation of $43.9 billion in USDC is backed by $44.1 billion in cash and short-term U.S. government bonds, according to weekly company disclosures. The portfolio of the new fund will also consist of U.S. Treasury bonds. The assets will be held at the Bank of New York Mellon, according to Circle, where the fund will be subject to regulation under the Investment Company Act of 1940, which requires an independent board and daily reports on the portfolio. Circle had previously begun a financial relationship with BlackRock, the world's biggest asset manager, when the firm invested in Circle's funding round announced in April."
A blog posting on Circle's website, "Deepening Our Partnership with BlackRock," tells us, "From the start, we've managed the USDC reserve to minimize risk -- liquidity, counterparty, operational, reputational and more -- so that USDC holders can be confident their money is sound and redeemable 1:1 for U.S. dollars at any time. This has guided our approach to regulation, liquidity and transparency and shaped our strategy of partnering with leading financial institutions."
It continues, "Through our partnership with BlackRock, we have begun investing in the Circle Reserve Fund to manage a portion of the USDC reserves. We expect the reserve composition will continue to be approximately 20% cash and 80% short duration U.S. Treasuries. The Circle Reserve Fund is a registered Rule 2a-7 government money market fund managed by BlackRock Advisors, LLC and its portfolio will consist of cash and short-dated U.S. Treasuries."
The blog comments, "The Circle Reserve Fund is only available to Circle. As our existing Treasury holdings mature, the proceeds will be used to purchase new Treasuries by the Circle Reserve Fund. We began this process on November 3, 2022 and expect to be fully transitioned by the end of Q1 2023. The Fund is custodied at Bank of New York Mellon, which already serves as the custodian for the Treasuries that comprise the USDC reserve today."
In other news, Investment News recently wrote that, "Higher yields on cash give advisers another asset allocation tool." The article states, "It's possible cash could turn out to be the best-performing asset class in 2022, which means some challenging conversations and asset allocation strategies for financial advisers and their clients. While yields on cash accounts hovering near 4% provides a silver lining to the general economic malaise of the past few years by giving savers something for their idle cash, it hasn't yet convinced everyone that a better-yielding form of safety is the best short- or long-term play."
It warns, "But stiff-arming the higher yields on cash in exchange for a higher risk/reward scenario could become less appealing as the Federal Reserve continues to push rates higher in an effort to tamp down inflation. 'I think high rates are here to stay for a while,' said Gary Zimmerman, chief executive of the cash management platform MaxMyInterest. Zimmerman said the past decade of below-normal interest rates and cash yields stands in stark contrast to the current market. He believes that the future will bring a reversion to 'more normalized' higher interest rates and that the Fed is not done raising rates yet."
Finally, the piece quotes, "Frank Bonanno, managing director at StoneCastle Cash Management, agrees that the 'inflation tail will continue to wag the Fed' for a while.... Bonanno described the mountains of cash sitting outside of portfolios managed by advisers as 'lazy cash' that can 'languish for years earning little to nothing and is many times uninsured.' 'It behooves advisers to address this indolent cash and create value by helping clients safely earn, insure, and save more and lessen the effects of diminishing purchasing power and higher inflation,' he added. 'Cash earning 0.5%, can easily be turned into 4%.'"
