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An Insight into BlackRock's Cash Management Business

An Interview with Rich Hoerner and Simon Mendelson, Co-Heads of Global Cash Management and Securities Lending, BlackRock

BlackRock has undergone substantial change in recent years, particularly with the acquisition of Merrill Lynch Investment Managers (MLIM) and Barclays Global Investors (BGI). As a result of these acquisitions, as well as the organic evolution of the firm, BlackRock is now positioned as a leading provider of money market funds (MMFs) and securities lending, both within the United States and internationally. In this interview, Helen Sanders talks to Rich Hoerner and Simon Mendelson, who were appointed co-heads of Global Cash Management and Securities Lending for BlackRock in October 2010. Rich has a strong background in portfolio and risk management, with many years’ experience at BlackRock. Simon was formerly head of corporate strategy for BlackRock following a career in management consultancy, with an emphasis on financial institutions, and he joined the cash business as COO in 2007.

How has the business changed since the acquisition of MLIM and latterly BGI?

Both MLIM and BGI brought significant value to our business. MLIM increased the scale of our activities, and enabled us to access the full breadth of Merrill Lynch’s relationships, among both institutional and retail investors. While the needs of international investors have always been a priority for BlackRock, BGI dramatically expanded our international footprint, with particular strength in GBP funds, as well as a strong fund portfolio in EUR and USD. These acquisitions are now behind us, and all three businesses are now largely integrated into a unified BlackRock, with one back office and technology infrastructure, standardised fees, and a cohesive suite of products.

Investors continue to value our stable and reliable approach to fund management and dedicated resources

What are today’s investment priorities for international investors, and how is BlackRock responding to this?

In many ways, investment priorities globally remain consistent, with a primary focus on security and liquidity. While yield is typically less important among investors, this is not universally the case, and certain clients are still looking for opportunities to earn extra return on their cash. In reality, the current low interest rate environment is probably not the right time to seek higher returns as this usually implies higher incremental risk for a relatively small return.

In general, however, we see greater consistency across corporate investors globally than we saw before the crisis. Before 2008, we found European investors typically had a slightly higher appetite for risk than their US counterparts. For example, MLIM had a small number of ultra-short bond funds that we inherited with the acquisition. While the size of these funds was not huge, it was interesting that corporate investors were willing to risk principal value to achieve a higher return, which was far less the case in the US. Now, however, this appetite for risk has reduced, and is more aligned with US investors.

BlackRock has always had a conservative approach to risk, evidenced during the crisis as our funds remained stable throughout a period of great uncertainty in the short-term credit markets. Consequently, investors continue to value our stable and reliable approach to fund management and dedicated resources, particularly in areas such as credit research and risk management. Although we have not needed to adjust our investment process as a result of the crisis, we have, of course, revised some elements of our activities in line with new regulatory requirements. For example, in the US, our MMFs now typically hold higher levels of daily and weekly liquid assets and typically have a shorter weighted average life. In Europe, the situation is similar; however, these demands are more driven by the rating agencies and the industry group, namely the Institutional Money Market Funds Association (IMMFA), as opposed to regulatory bodies

Are there any regions in which you see particular growth, either now or in the foreseeable future, and why is this?

We expect to see our international funds grow more than our US funds in the short to medium term, driven by two key factors. First, despite the presently low interest rate environment, there is the potential to earn greater return on cash in Europe. Second, while MMFs are well-established in the US and UK, awareness and adoption of MMFs is still developing in other parts of Europe and Asia. BlackRock is already a leader in USD, EUR and GBP funds, and we are gradually expanding our activities in Asia as demand for MMF solutions develops.

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