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The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" reports yesterday. Their numbers confirm a jump in money fund assets in December, following a jump in November and a dip in October. ICI's "December 2017 - Trends" shows a $51.8 billion increase in money market fund assets in December to $2.847 trillion. This follows a $57.9 billion increase in November, a $8.8 billion decrease in October, a $28.8 billion increase in Sept., a $71.8 billion increase in August, and a $13.6 billion increase in July. In the 12 months through December 31, money fund assets have increased by $119.2 billion, or 4.4%. We review ICI's latest reports below, and we also quote from a filing for a new money market fund, Semper U.S. Treasury Money Fund.

ICI's monthly report states, "The combined assets of the nation's mutual funds increased by $149.60 billion, or 0.8 percent, to $18.75 trillion in December, according to the Investment Company Institute’s official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI."

It explains, "Bond funds had an inflow of $13.40 billion in December, compared with an inflow of $14.97 billion in November…. Money market funds had an inflow of $49.40 billion in December, compared with an inflow of $55.44 billion in November. In December funds offered primarily to institutions had an inflow of $33.80 billion and funds offered primarily to individuals had an inflow of $15.59 billion."

The latest "Trends" shows that both Taxable and Tax Exempt MMFs gained assets again last month. Taxable MMFs increased by $49.3 billion in December, after increasing by $57.4 billion in November and decreasing $9.4 billion in October, but increasing $30.1 billion in September, $73.5 billion in August and $11.9 billion in July. Tax-Exempt MMFs increased $2.5 billion in December, after increasing $0.5 billion in November and $0.9 billion in October, but decreasing $1.3 billion in September and $1.7 billion in August. Over the past year through 12/31/17, Taxable MMF assets increased by $118.3 billion (4.6%) while Tax-Exempt funds rose by $0.8 billion over the past year (0.6%).

Money funds now represent 15.2% (up from 15.0% the previous month) of all mutual fund assets, while bond funds represent 21.7%, according to ICI. The total number of money market funds decreased by 9 to 382 in December, down from 421 a year ago. (Taxable money funds fell by 9 to 299 and Tax-exempt money funds were unchanged over the last month.)

ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which confirmed a surge in Repo and a sharp drop in CDs in December. Repo remained the largest portfolio segment; it was up $51.9 billion, or 5.7%, to $956.4 billion or 35.2% of holdings. Repo has increased by $156.2 billion over the past 12 months, or 19.5%. (See our Jan. 11 News, "Jan. Money Fund Portfolio Holdings: Repo Jumps, Breaks 1.0 Trillion.")

Treasury Bills & Securities remained in second place among composition segments; they rose by $354 million, or 0.1%, to $702.2 billion, or 25.9% of holdings. Treasury holdings have fallen by $94.1 billion, or -11.8%, over the past year. U.S. Government Agency Securities remained in third place; they rose by $6.0 billion, or 0.9%, to $682.5 billion, or 25.1% of holdings. Agency holdings have risen by $4.7 billion, or 0.7%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they decreased $35.5 billion, or -16.3%, to $182.4 billion (6.7% of assets). CDs held by money funds have risen by $34.6 billion, or 23.4%, over 12 months. Commercial Paper remained in fifth place, increasing $1.9B, or 1.3%, to $148.2 billion (5.5% of assets). CP has increased by $44.4 billion, or 42.7%, over one year. Notes (including Corporate and Bank) were down by $404 million, or -5.2%, to $7.4 billion (0.3% of assets), and Other holdings increased to $15.0 billion.

The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 306.4 thousand to 26.885 million, while the Number of Funds declined by 9 to 299. Over the past 12 months, the number of accounts rose by 1.650 million and the number of funds decreased by 12. The Average Maturity of Portfolios was 32 days in December, up 2 days from November. Over the past 12 months, WAMs of Taxable money funds have shortened by 12 days.

In other news, a filing for the new Semper U.S. Treasury Money Fund tells us, "The Semper U.S. Treasury Money Market Fund (the “Fund”) seeks to provide current income while maintaining liquidity and a stable share price of $1.00." Run by Semper Capital Management, the fund will have an expense ratio of 0.30% (after a 0.12% waiver).

It adds, "The Semper U.S. Treasury Money Market Fund (the "Fund") is a series of Forum Funds II (the "Trust"), an open-end, management investment company (mutual fund).... The Advisor receives an advisory fee from the Fund at an annual rate equal to 0.20% of the Fund's average annual daily net assets under the terms of the Advisory Agreement.... Thomas Mandel, CFA, has been the portfolio manager of the Fund since its inception in 2018 and is responsible for the day-to-day management of the Fund."


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Apr 07

The April issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Tuesday morning, features the articles: "Govt MMFs Skyrocket; Prime Reels Over Coronavirus Crisis," which reviews the dramatic moves in money fund assets in March; "Federated's Cunningham on Front Lines of Cash Crisis," which profiles the Federated Hermes MM CIO; and, "Worldwide MF Assets Jump to $6.9 Tril; US Surges, China," which looks at ICI's latest global money fund statistics. We've also updated our Money Fund Wisdom database with March 31 statistics, and sent out our MFI XLS spreadsheet Tuesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our April Money Fund Portfolio Holdings are scheduled to ship on Thursday, April 9, and our April Bond Fund Intelligence is scheduled to go out Wednesday, April 15.

MFI's "Govt MMFs Skyrocket" article says, "Money market mutual fund assets showed their biggest asset gain in history in March, skyrocketing by $652.7 billion, or 16.4%, to a record $4.624 trillion. Government MMFs (including Treasury funds) rose a stunning $813.3 billion (29.6%) to $3.563 trillion, while Prime MMFs fell by $152.0 billion to $929.6 billion last month. In comparison, during September 2008, when Reserve Primary Fund "broke the buck" and MMFs saw $160.1 billion in outflows (to $3.203 trillion), Prime MMFs fell by almost 3 times as much then, $447.6 billion, as they did in March 2020. Govt MMFs jumped by just $324.6 billion back during that tumultuous September of 2008, according to our MFI XLS."

We explain, "ICI's weekly assets series also showed these stunning gains. (See ICI's series in the chart on p.1 and see the flows from our MFI Daily in the chart at right). They show money market mutual fund assets surging to record levels in the latest week (through April 1), though the inflows didn't match the previous week's massive $285.7 billion inflow. (It was the second largest inflow ever though.)"

Our latest "profile" reads, "This month, MFI interviews Deborah Cunningham, Federated Hermes' Executive VP & CIO of Liquidity Products. We ask her about the crazy month of March, and about the current state of the money fund sector, flows and the Fed's support programs. Our Q&A follows."

MFI says, "Give us a little history. Cunningham tells us, "I've seen 17% interest rates and 17 basis point interest rates, and neither one of them are healthy. I've been in the industry for the better part of four decades, and worked my way from accounting into the investment group through the credit area. I've been on the portfolio management side now for 25 years."

We ask, "How are you holding up?" She responds, "Well, things have definitely gotten better. I think the worst days were in the beginning of the week of [March] 16th ... then things started to get better a little bit better on [March 19-20]. I would say the markets definitely turned a corner to some degree on Monday [March 23]."

Cunningham adds, "For Treasury securities, the worst days were last week after the massive decrease in yields, but without any real additional volume in Treasury securities yet. Ultimately, you were able to keep positive yields by participating in the primary issuance of bills. But to try to buy anything in the secondary without going into negative territory was almost an impossibility. With the stimulus package ... and the additional bill issuance ... that sector is now much healthier."

The "Worldwide" article tells readers, "The Investment Company Institute's latest 'Worldwide Regulated Open-Fund Assets and Flows, Fourth Quarter 2019' release shows that money fund assets globally rose by $311.2 billion, or 4.7%, in Q4'19 to a record $6.937 trillion. The increase was driven by big gains in U.S.-based money funds, and increases in Ireland-, China- and Luxembourg-based money funds. MMF assets worldwide have increased by $860.7 billion, or 14.2%, the past 12 months, and money funds in the U.S. now represent 52.4% of worldwide assets. (Note: Let us know if you'd like to see our latest Money Fund Intelligence International product, which tracks 'offshore' money market funds domiciled in Europe and outside the U.S.)"

The latest MFI also includes the News brief, "Money Fund Yields Headed to Zero," which writes, "After a panic 100 bps rate cut on March 16, money fund yields dropped below the 1.0% the following day and fell below 0.5% by month-end. And they're still falling. Yields on Government money funds plunged (and a Treasury fund closed to new investors), while Prime MMF barely fell (driving spreads to their widest ever). Our flagship Crane 100 Money Fund Index is now 0.41% (as of 4/6) according to Money Fund Intelligence Daily."

A second News piece titled, "Bill Gives Treasury Temporarily MMF Guarantee, But Need Has Passed," says, "In the depths of the latest money market crisis, the U.S. Treasury sought approval from Congress to launch a program to guarantee money market mutual funds for the second time in history. But as the Federal Reserve stepped in with myriad support programs and after a delay in the CAREs bill, it appears the guarantee won't be needed. (Knock on wood.) See Crane Data's March 19 and April 6 News and WSJ's 'Treasury Department Asks Congress to Let It Backstop Money Markets.'"

Our April MFI XLS, with Mar. 31 data, shows total assets jumped by $652.7 billion in March to $4.624 trillion, after rising $23.4 billion in February, falling $7.8 billion in January and rising $72.7 billion in December. Our broad Crane Money Fund Average 7-Day Yield fell 80 bps to 0.47% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 94 bps to 0.47%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was down 80 bps at 0.88% and the Crane 100 fell to 0.74%. Charged Expenses averaged 0.41% (unchanged from last month) and 0.27% (unchanged from last month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 33 (up two days) and 35 days (up two days) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Mar 06

The March issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Consolidations & Liquidations Again Loom in MMF Sector," which features the merger trend that is likely to continue; "HSBC Global AM's Curry on US, European & EM MMFs," which profiles Jonathan Curry of HSBC Global Asset Management; and, "Deposit Growth Rebounds After Stall; Sweeps Fueling," which compares the growth of bank deposits vs. money fund assets. We've also updated our Money Fund Wisdom database with Feb. 29 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our March Money Fund Portfolio Holdings are scheduled to ship on Tuesday, March 10, and our March Bond Fund Intelligence is scheduled to go out Friday, March 13. (Note: Our apologies, but we've cancelled our upcoming Bond Fund Symposium in Boston!)

MFI's "Consolidations" article says, "Pressure on asset management and financial stocks is heating up the merger market, as evidence by the recent announcements between Franklin and Legg Mason and Morgan Stanley and E*TRADE. Given the potential of looming negative yields and fee waivers, this trend should only accelerate as we move through 2020. We review the latest news here."

It explains, "Last year, we saw Federated take over PNC's fund business and Invesco absorb OppenheimerFunds, and now it appears we'll see more fund consolidation in 2020. A press release entitled, 'Franklin Templeton to Acquire Legg Mason, Creating $1.5 Trillion AUM Global Investment Manager,' tells us, 'Franklin Resources ... operating as Franklin Templeton ... announced that it has entered into a definitive agreement to acquire Legg Mason, Inc.'"

Our "HSBC Global AM" profile reads, "This month, MFI speaks with Jonathan Curry, Global CIO for Liquidity and CIO, Americas for HSBC Global Asset Management. The firm recently filed to launch an ESG money fund in the U.S., and it continues to be a major player globally and in a number of emerging markets. We discuss their funds, the latest money market developments and a number of other issues below.

MFI says, "Give us a little bit of history." Curry answers, "We've been running money funds for over 25 years in a very broad range of currencies. We treat liquidity as an asset class in its own right, so we've got dedicated investment professionals, client service teams, distribution teams, product teams, all focused on this asset class. Liquidity represents around 20 percent of the AUM ... of HSBC Global Asset Management. It's a very important part of the of the asset management franchise here at HSBC. I joined HSBC in 2010, as the Global Chief Investment Officer for Liquidity. I moved to the U.S. in Q'3 2016, to take on the additional responsibilities that I have today. Prior to joining HSBC, I was at Barclays Global Investors."

MFI says, "Tell us about the fund lineup." Curry continues, "For liquidity, we finished 2019 with just under $100 billion, $98.1 billion to be precise. We manage liquidity solutions in 11 currencies globally, which is one the widest breadth of currencies of any manager. It covers both developed and emerging market currencies. We have offerings in U.S. dollar, in sterling, in euros, which are where the bulk of the assets that we have are managed. In Asia, we have Hong Kong dollar funds, RMB, Australian dollar, Taiwan dollar and Indian rupee. In addition to sterling and euros in Europe, we have Turkish lira. In the Americas, in addition to US dollars, we have a Canadian dollar offering and an Argentinian peso offering."

The article on "Deposits" tells readers, "U.S. money fund assets grew by 20.8% in 2019, the biggest increase since 2007. Meanwhile, bank deposits picked up the pace to grow by 5.4% last year, after growing a mere 1.7% in 2018 (the slowest rate since 1995), according to the Federal Reserve's H.6 data series. Money funds added $565.5 billion (to $3.311 trillion) and MMDAs gained $503.6 billion (to $9.868 trillion) for 2019, while Small Time Deposits, or bank CDs, grew by $60.3 billion."

It adds, "Assets of MMDAs began growing again in June 2019, following a stall starting in late 2018. Meanwhile, money fund assets have paused year-to-date in 2020, after a scorching 2019."

The latest MFI also includes the News brief, "Money Fund Assets Up in February," which writes, "Crane Data shows MMFs grew by $23.4 billion to $3.977 trillion in February, following January's $3.7 billion decline. ICI shows assets jumping $49.3 billion in the first week of March."

A second News piece titled, "Fed Cuts by 50; Yields Head to 1.0%," says, "Worried over volatility and the coronavirus, the Federal Reserve cut rates in a surprise 50 basis point move, lowering the Fed funds target rate range to 1.00-1.25%. Money fund yields are expected to plummet in coming days and should break below the 1.​0% level in April."

Our March MFI XLS, with Feb. 29 data, shows total assets rose by $23.4 billion in February to $3.977 trillion, after falling $7.8 billion in January and rising $72.7 billion in December and $40.9 billion in November. Our broad Crane Money Fund Average 7-Day Yield fell to 1.27% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down a basis points to 1.41%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was unchanged at 1.68% and the Crane 100 fell to 1.68%. Charged Expenses averaged 0.41% (unchanged from last month) and 0.27% (unchanged from last month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 32 (up two days) and 33 days (unchanged) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Feb 07

The February issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Money Market Supply to Slow in '20 Says JPM's Ho at MFU," which features one of the highlights from our recent Money Fund University; "Cohen, Gershkow Review MMF Regs, Reforms at MFU," which excerpts from the "Money Fund Regulations: 2a-7 Basics & History" MFU session; and, "Social Gets Hotter, But What Exactly Is an ESG MMF?," which writes about the growing but confusing ESG Money Fund space. We've also updated our Money Fund Wisdom database with Jan. 31 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our February Money Fund Portfolio Holdings are scheduled to ship on Tuesday, Feb. 11, and our Feb. Bond Fund Intelligence is scheduled to go out Friday, Feb. 14.

MFI's "Money Market Supply" article says, "Crane Data recently hosted its Money Fund University in Providence, R.​I. While MFU is meant to be our 'basic training' conference, there are usually discussions of hot topics and always a wealth of statistics of interest even to veterans in the space. We excerpt some of the highlights below and in the article to the right."

It explains, "J.P. Morgan Securities' Teresa Ho presented the 'Instruments of the Money Markets Intro,' giving an overview of the types of money market securities owned by money funds. She tells us, 'Borrowers use [the money markets] as a way to finance their short-term expenses, and investors use [it] as a way to temporarily invest their cash.... As long as there's a demand for liquidity and a mismatch between cash inflows and cash outflows, there is a need for money markets." (Note: Crane Data Subscribers and Money Fund University Attendees may access the Powerpoints and recordings for MFU in our 'Money Fund University 2020 Download Center.')"

Our "Cohen, Gershkow Review" piece reads, "Our recent MFU event also always contains a segment on 'Money Fund Regulations: 2a-7 Basics & History,' which featured Dechert's Steve Cohen & Stradley Ronon's Jamie Gershkow. The two reviewed regulations governing money funds and recent reforms, and also touched on some topics like ESG and ETFs. Cohen tells us, 'Money market funds were developed in the 1970s as an option for investors to purchase essentially a pool of short-term securities that gave them higher returns than banks were providing at the time.'"

He continues, "Initially funds had to get exempted from the SEC in order to operate money market funds using amortized cost, that was up until 1983. In 1983, the SEC adopted Rule 2a-7 in a much more basic form than today. It codified those exempted borders and allowed all money market funds to operate with a stable NAV, using amortized cost, or the penny-rounding method.... Amortized cost allows a fund to take the acquisition cost of its security and adjust for amortization of the premium or accretion of the discount."

Our "Social Gets Hotter" piece says, "ESG and Social money market funds keep getting hotter, but it still remains to be seen whether the strategy makes sense in the money markets. The latest events in the space include webinars from fund ratings firm Fitch Ratings and online money fund trading portal Institutional Cash Distributors (​ICD), the launch of another social or 'impact' share class and separate deposit program, and the debut of UBS Select ESG Prime (which appears in the rankings this month)."

This week's "ESG in Money Market Funds" webinar (see yesterday's Crane Data News, which featured Fitch's Alastair Sewell and SSGA's Will Goldthwait, discussed ESG Money Market Funds and their definition problems in detail. Sewell comments, "Certain high profile investors, both in Europe and ... in the U.S., have indicated an interest in having ESG exposure in the cash element of their portfolio. So, what does that mean for money market funds? We can see that the number of ESG money market funds has increased sharply.... We now count a total of 34 explicit, dedicated ESG money market funds globally. The question presumably on everyone's minds then is, 'What exactly is an ESG money market fund?'"

The latest MFI also includes the News brief, "SEC Stats: MMF Assets Break $4.0 Trillion, Up 18th Month; Prime Dips," which writes, "The Securities & Exchange Commission’s latest 'Money Market Fund Statistics' showed that total money fund assets rose by $37.2 billion to a record $4.021 trillion in December, the 18th straight month of gains. Prime MMFs decreased $26.5 billion to close at $1.095 trillion, while Govt & Treasury funds rose by $64.7 billion to a record $2.783 trillion. Tax Exempt funds fell by $1.0 billion to $142.8 billion. Yields fell for Prime MMFs and Govt MMFs, while Tax-Exempt MMFs increased rates."

A second News piece titled, "Federated Renamed Federated Hermes," explains, "J. Christopher Donahue, president and CEO, comments in their earnings release, 'Federated reached new records across all three major asset classes -- equity, fixed income and money market -- with the latter increasing by $94 billion in 2019 as Federated's diverse lineup of liquidity products offered competitive yields for investors seeking cash-management solutions.’ The release explains, ‘As announced earlier this month, Federated will change its name to Federated Hermes.'"

Our February MFI XLS, with Jan. 31 data, shows total assets fell by $7.8 billion in January to $3.950 trillion, after rising $72.7 billion in December, $40.9 billion in November and $85.2 billion in October. Our broad Crane Money Fund Average 7-Day Yield fell to 1.29% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 4 basis points to 1.42%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 3 basis points to 1.69% and the Crane 100 fell to 1.69%. Charged Expenses averaged 0.40% (down one basis point from last month) and 0.27% (unchanged from last month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 30 (down three days) and 33 days (down four days), respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Jan 23

This month, MFI interviews BlackRock's Global Head of Cash Management Tom Callahan. He discusses a number of issues in the money market fund space, including the outlook for 2020, technology, ESG, European money funds and more. Our Q&A follows. (Note: The following is reprinted from the January issue of Money Fund Intelligence, which was published on Jan. 8. Contact us at to request the full issue or to subscribe. Also, for those attending Crane's Money Fund University, which takes place Thursday and Friday morning, welcome to Providence! Attendees and Crane Data subscribers may access our conference materials at the bottom of our "Content" page or our via our Money Fund University 2020 Download Center. Feel free to drop by the Providence Renaissance if you're in town!)

MFI: Give us some history. Callahan: BlackRock's Cash business is actually older than BlackRock itself. You can trace our history back to 1973 when TempFund was launched by Provident National Bank. In '95, when PNC made an investment in BlackRock, they merged their entire fixed income business, including their money funds, into BlackRock. Cash has been a core, critical part of BlackRock’s franchise since the firm was founded.

For my own history, I came to BlackRock in 2013, by way of Merrill Lynch and the New York Stock Exchange. When I joined, the Cash management industry was plagued by zero interest rates, outflows and fee waivers. Back then, BlackRock's cash management business had roughly $250 billion. Now, 5 1/2 years later, we have enjoyed terrific growth, much of it organic. As we announced in our last earnings report, in mid-2019 we crossed our long-term goal of $500 billion in total client cash management assets, and we've kept growing! It's been a great run and a lot of fun.

MFI: What are your big priorities? Callahan: Let me start with technology and then talk a little bit about LEAF. They're both absolutely critical, and I believe are indicative of the profound changes happening industry-wide right now. Competition around technology is heating up in a very healthy way. I think this was really precipitated by Money Fund Reform in 2016, when we saw $1 trillion move out of Prime funds. The cash management industry has always been a relatively commoditized business, but when essentially 80% of the assets in the industry moved into government funds, it became hyper-commoditized.

That dynamic then intersects with the longer-term trends of clients' use of portals and intermediaries -- which are taking a larger percentage of the total volume in the industry every year. I think a lot of us, certainly at BlackRock, realized that we needed a different distribution strategy. That's what led us to acquire Cachematrix in 2017. In the last 12 months, other large providers have announced new investments in their own tech platforms. So, I think it's clear that the new competitive front in cash management is technology.

We believe that what clients care most about in cash is convenience. And the way to deliver convenience to clients is through technology. These tech-driven enhancements are ultimately going to benefit clients through enhanced ease of use, improved functionality, better transparency and ultimately lower fees. More recently, we acquired the NEX Treasury platform to try to expand in the European market. We're continuing to invest enormous amounts of time, energy and resources to making sure that we stay on the cutting edge of this technology transformation that's happening in cash management.

The second transformation that I think is underway in cash management is sustainability. ESG funds are quickly moving from being interesting fringe products to the mainstream. We launched the Liquid Environmentally Aware Fund, or LEAF, very early on in the movement, in April 2019, largely in response to client demand. Since launch, the LEAF family of funds has been incredibly successful. Across the four funds (U.S. domestic, plus offshore Dollar, Sterling and Euro), we're coming up on $8 billion in assets combined. We've really seen stunning growth in such a short period of time. What we've uncovered is that bringing values-based investing to cash is resonating with investors, frankly, even more than we even expected.

We built our LEAF funds to be a no brainer. They are priced and perform nearly identically to the traditional options. So if you can buy a large, liquid, diversified money fund that is green, offers benefits in terms of sustainability, all while getting nearly the same return that you would get in a traditional cash product, we think that is an incredibly compelling value proposition. LEAF has some other features that help make this fund truly unique. A partnership with World Wildlife Fund helps support their ongoing conservation efforts and helps us make better investment decisions. We also take 5% of the revenue of the fund to buy and retire carbon offsets.... It seems like every month there are new funds announced and if we look out three or four years, ESG funds will be the default, not the exception in cash.

MFI: What are your biggest challenges? Callahan: I would say our biggest challenge, and luckily it plays to all of our strengths, is just managing scale. If you add up all of our client assets and also the funds that we manage for other BlackRock products, we're now managing over $800 billion and our yearly trading volume is measured in the tens of trillions. Doing that in an efficient, scalable way that relies on technology and doesn't expose us to any undue risk, that's our biggest challenge today.

Most of the inflows that you saw in 2019 went to the largest players. In a way, it almost appears to me that the industry is organically consolidating -- i.e., there is such a huge preference from clients for big, scaled funds that those funds are naturally attracting most of the new money. So the big are getting bigger which, fortunately, offers advantages to clients in terms of liquidity and diversity. But what it means for us as a provider is that we need to be constantly investing in our systems and our platforms to be as efficient as we can. Luckily, our global business is built on the Aladdin platform, which is the best investment technology and risk management platform in the industry.

MFI: How are you positioning the funds? Callahan: In terms of positioning of the portfolios, generally we think that the risk is to lower yields. [A] new geopolitical risk has arisen, and the market really hasn't changed its pricing in terms of Fed expectations, with only one cut currently priced in for 2020. We've seen that the Fed is willing to cut rates at any sign of an economic slowdown. We think given where we are in the business cycle and where risk assets are priced, there is a very asymmetric risk towards lower rates.

Fortunately, to help us manage through this risk, we think we have some of the best PMs in the business. Rich Mejzak is our global cash CIO and he's been here since the MLIM days. On the government fund side, Joe Markowski, Eion D'Anjou, Chris Linsky and team are fantastic. They were here through the crisis, [and] reforms in '16. [W]e are very lucky to have that steady hand in Philadelphia investing our clients' assets.

MFI: Any customer concerns? Callahan: The number one concern we hear from clients is managing their own time and bandwidth. I think since the financial crisis, the role of the corporate treasurer and the definition of what that job encompasses has expanded three-or-four-fold. Ultimately, what our corporate treasurer clients care about more than anything is convenience. They don't want to have to stress about the task of cash investing. They want it to be effortless [and] integrated with other tools ... like TMSs. They want automation. They want sweeps. They want to 'set it and forget it.' That's why we're investing in technology the way that we are and I think that's why the industry is moving so aggressively in this direction.

MFI: What about fees and waivers? Callahan: If you look across the industry, I think cash management has been more resistant to fee compression than some other sectors of the asset management industry. I think there are a couple of reasons behind that. One of them, again, is that scale in cash is just so critical. The other are the various hidden taxes money fund investors are paying currently in terms of distribution fees. Most money fund providers pay in certain distribution networks over half their management fee to their distributors, which ultimately reduces the return investors earn. I think that as technology evolves and as greater competition is created in the distribution, buying and selling of money funds, a lot of those implied fees and tolls will be reduced. That's what technology does. It eliminates fees and reliance on middlemen. So, I do think you will see distribution fees drop due to technology and then you will see money fund fees drop commensurately as well.

MFI: What about ultra-short or offshore? Callahan: 2019 was a year where every single sector you just mentioned saw record or near record inflows. Our core Government funds, our Prime funds, our LEAF funds, our SMAs, all grew across both onshore and offshore. I think the offshore story is really an incredible one. This time last year we were all in the teeth of European Money Fund Reform and there was a huge amount of uncertainty. The fact that not only did we not see outflows in our funds but we actually hit new record highs was one of the great successes of 2019. We also saw fantastic growth of our SMA book in EMEA and APAC.

We have a fund called Short Obligations, which is our U.S. Ultra-Short Bond Fund. For us, it's a high net worth product that two years ago had $200 million in assets. It crossed $3 billion last year. For high net worth clients looking to get a slightly enhanced return on their cash by accepting floating NAV and going out a few months in duration, it has proved to be a homerun product, especially in a declining yield environment. It was another really strong performer for us in 2019.

MFI: What about the future? Callahan: I think that the industry has enormous room to continue to grow. I'm very, very bullish on the future of money funds. 2019 was a spectacular year for the industry and it was a terrific double-digit growth year for BlackRock's cash management business. It's not a surprise when you look at the shape of the yield curve, overall volatility in the markets, M&A activity, etc., all of those things kind of conspired together to create an ideal environment. Clients could earn, for much of 2019, 2.25-2.5% in a money fund, while the 10-year Treasury was yielding 1.60%.

I think for a lot of investors that was a no brainer. It was a really positive year for the industry. As great as 2019 was, I believe there is room for even more growth in 2020. You could make an argument that the cash management industry could double again in the coming years, which is exciting.

I firmly believe that transformative technology is going to be that growth accelerant. It's going to make money market funds cheaper, easier to use and more transparent. It's going to diminish or eliminate all the headaches of account setups and complexity around buying and selling of money funds. The lesson of the digital economy is when you make things easier to buy and sell, people buy and sell more of them.