Quarterly earnings reports from major financial companies are shedding more light upon the huge March shift in assets from bank deposits to money market mutual funds. Late last week, BlackRock reported its "First Quarter 2023 Earnings," and answered a number of questions on the cash super-spike. (See the Earnings Call Transcript here.) New CFO Martin Small comments on the quarter, "Negative revenue impacts were partially offset by the elimination of discretionary money market fund fee waivers and higher securities lending revenue. BlackRock's cash management platform saw $8 billion of net inflows in the first quarter. Flows were driven by surging demand for our cash management solutions in March as clients look to diversify away from deposits and enhance cash yields. March net inflows offset net redemptions in the first two months of the quarter that were primarily due to client-specific activity such as SPAC unwinds."
He explains, "We're actively working with clients on their liquidity management strategies, providing technology, market and operational insights and, of course, delivering a full range of cash management capabilities. BlackRock's first quarter results highlight the benefits of the investments we've made to build a diversified and resilient investment technology platform."
CEO Laurence Fink says, "The powerful simplicity of our business model is that when we deliver value for our clients, we also create more value for all our shareholders.... Clients also came to BlackRock for immediate liquidity and tactical allocation needs, whether it was through our diversified cash management offerings, our short-duration fixed income products, precision ETFs or exposures in valuational tools in Aladdin. Liquidity has also become paramount for our clients. Cash is the lifeblood of individuals and organizations, especially in times of stress."
He continues, "Our teams have been partnering with clients as they reevaluate where they put their cash and how to balance holdings assets and traditional bank deposits alongside other options like money market funds or ultra-short bond strategies. In the month of March, BlackRock saw over $40 billion of net inflows into our cash management strategies. We expect to shift from deposits to money market funds to be a longer-term trend and are actively working with clients to help them diversify and enhance the yields they're earning on their cash."
Fink adds, "Cash often gets overlooked. Now that yields are back after a decade -- a lost decade -- of near zero rates, we're excited to help clients put their cash to work at BlackRock. Through our Cachematrix and Aladdin technology, our risk management and product innovation and collaboration across the $3.3 trillion fixed income and cash platforms, we are positioning BlackRock to be a partner of choice for our clients' liquidity and cash management needs."
During the Q&A, a number of analysts asked about deposit outflows. Small responds, "It is an incredibly dynamic time for the cash and liquidity markets. This has historically been a stable value, low or no expected return asset class where people do lots of operational things. But we've obviously entered into this period that started with [higher] rates and inflation and has been supercharged essentially by banking sector tremors. As you correctly flagged, we've seen an extraordinary amount of inflows into money market funds. Clients, I think, are paying very close attention to where they keep their operating cash and ... where they can earn a yield premium over deposits. And in every single cycle, deposits obviously tend to lag where money market rates are and deposit betas are just lower."
He tells us, "So I think there is absolutely a structural shift in the marketplace that's driven by two things. One, just rates inflation, but also just clients paying a lot more attention about where they're going to keep their cash balances for purpose of what they do. We're really well positioned here. We had $40 billion-plus of flows in March. We had some outflows in January and February that were really resulting from SPAC unwinds. But we feel very good about our positioning. We have a $683 billion cash platform. We've grown at 50% over the last five years. And I think uniquely, as is with most things at BlackRock, we have a tech-first distribution strategy with assets like Cachematrix and Aladdin. And we also have a very global business that has real diversity of offering across money funds, ETFs, separate accounts."
Small adds, "The last thing I'd just say about that is, I would think about the structural shift that you proposed is not just being about money funds or segregated accounts, but [also] about all of the cash and cash surrogates. I mean there are so many things you can go throw a dart at that yield 5% now. And I would look at a lot of what's happening in the bond ETF world is also being about picking up a yield premium over cash. So we expect to be really well positioned as clients do a lot of that work to use the ETF markets, to use money funds as well as a whole array of active fixed income solutions."
In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of April 14) includes Holdings information from 64 money funds (up 8 from two weeks ago), which totals $2.285 trillion (up from $2.130 trillion) of the $5.629 trillion in total money fund assets (or 40.6%) tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our latest Monthly Money Fund Portfolio Holdings here.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.398 trillion (up from $1.271 trillion two weeks ago), or 61.2%; Treasuries totaling $550.0 billion (up from $531.1 billion two weeks ago), or 24.1%, and Government Agency securities totaling $235.0 billion (up from $234.2 billion), or 10.3%. Commercial Paper (CP) totaled $45.0 billion (up from two weeks ago at $40.3 billion), or 2.0%. Certificates of Deposit (CDs) totaled $21.2 billion (up from $18.9 billion two weeks ago), or 0.9%. The Other category accounted for $21.3 billion or 0.9%, while VRDNs accounted for $14.7 billion, or 0.6%.
The Ten Largest Issuers in our Weekly Holdings product include: the Federal Reserve Bank of New York with $907.9 billion (39.7%), the US Treasury with $550.0 billion (24.1% of total holdings), Federal Home Loan Bank with $184.0B (8.1%), Fixed Income Clearing Corp with $137.0B (6.0%), Federal Farm Credit Bank with $47.5B (2.1%), JP Morgan with $45.4B (2.0%), Citi with $26.6B (1.2%), Barclays PLC with $26.4B (1.2%), RBC with $26.1B (1.1%) and BNP Paribas with $24.9B (1.1%).
The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt ($261.3B), Fidelity Inv MM: Govt Port ($163.2B), Morgan Stanley Inst Liq Govt ($148.6B), BlackRock Lq FedFund ($134.3B), Dreyfus Govt Cash Mgmt ($119.3B), BlackRock Lq Treas Tr ($107.3B), Goldman Sachs FS Treas Instruments ($100.1B), Fidelity Inv MM: MM Port ($98.2B), Allspring Govt MM ($92.0B) and BlackRock Lq T-Fund ($90.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
