BlackRock Shakes Up Money Market Offerings Ahead Of Impending Regulatory Changes

Earlier this week, BlackRock (NYSE:BLK) detailed plans to revamp its money market funds to ensure their compliance with new regulations adopted by the Securities and Exchange Commission (SEC) last July. ^[1] The global asset management leader will discontinue some of its money market offerings, merge similar funds, and also convert some of them into floating NAV (net asset value) funds. The changes will reduce the number of BlackRock’s money market funds from the current figure of around 50 to roughly 30.

BlackRock is the world’s largest asset manager with almost $4.7 trillion in assets under management at the end of 2014. With just under $300 billion in total assets under management, its money market funds form an important part of the company’s offerings. Notably, BlackRock ranks third among global money market fund managers, with JPMorgan (NYSE:JPM) taking the top-spot ($461 billion in assets under management) followed by Fidelity (more than $400 billion). The changes announced by BlackRock follows a string of similar steps undertaken by its largest competitors over recent months. ^[2]

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Over the years, money market funds have been the preferred investment vehicle for retail as well as institutional investors looking for good returns over a time frame of just a few months. Their importance is made clear from the fact that money market funds in the U.S. currently manage roughly $2.7 billion worth of assets. But several concerns were raised about these funds in the wake of the economic downturn of 2008, when the government was forced to step in to prevent a run on them after Lehman Brothers fell. To address these concerns, the SEC proposed several changes to regulations governing these funds last July. ^[3] The two primary changes that were implemented were: the requirement for specific types of money market funds to abandon the prevalent fixed NAV method and adopt a floating NAV, and granting power to fund managers to impose temporary restrictions on investors from redeeming their investments under adverse economic conditions.

BlackRock’s recent announcement highlights the company’s efforts towards complying with these new rules. After all, with $218 billion in assets across its money market offerings in the U.S., these funds account for nearly 75% of BlackRock’s global money market assets. BlackRock currently has a roughly 8% share of the industry in the U.S., and has been looking to gain more ground over recent years. It must be mentioned here that the size of these assets for BlackRock globally was at a peak figure of $350 billion in early 2008, before falling steadily over the next four years. It was only in late 2012 that the money market funds began to recover to reach $296 billion by the end of 2014.

While the string of changes to its money market offerings may result in some investors switching to similar funds offered by competitors, the move was inevitable considering the October 2016 deadline for such funds set by the SEC.  We currently forecast that the size of assets managed by BlackRock across its money market fund offerings will grow by roughly 5% annually over coming years. You can see how a faster or slower growth in these assets impacts BlackRock’s share price by making changes to the chart below.

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1. BlackRock to Shift Funds to Comply With New Rules, The Wall Street Journal, Apr 6 2015 [↩]
2. JPMorgan Money Market Funds announce intended money market fund designations in response to SEC reforms, JPMorgan Global Liquidity Website, Fen 20 2015 [↩]
3. SEC Adopts Money Market Fund Reform Rules, SEC Press Releases, July 23 2015 [↩]