Bank of America to sell money market fund to BlackRock
On November 3, 2015, Bank of America (BAC), the second-largest bank in the United States (SPY) announced that it has agreed to sell its money market fund to asset management giant BlackRock (BLK). The fund is currently worth $87 billion on Bank of America’s books.
This is one of the largest deals in history in the cash management industry. Terms of the transaction are still not disclosed, but it’s expected to grow BlackRock’s assets under management to $370 billion. This deal is expected to close by the first half of 2016.
“This transaction is consistent with Bank of America’s ongoing efforts to simplify its business, in this instance, by outsourcing certain product manufacturing functions to an industry leader,” said Bank of America spokeswoman Susan McCabe. She added that the bank will focus on distributing money market funds from BlackRock and other third-party providers.
Money market is facing challenges
The money market funds industry is facing challenges generating profitability in a low–interest rate environment. The money market fund industry also faces challenges from costly new regulations that will come into effect from next year onward. These regulations require prime funds to do away with their $1 fixed share prices and float in value such as mutual funds.
Cash management businesses are beneficial for fund managers such as BlackRock, Franklin Resources (BEN), Invesco (IVZ), and State Street (STT), as they are free from the additional regulations that banks must adhere to.
Money market funds invest in short-term securities representing high-quality, liquid debt and monetary instruments. They provide investors access to safe, cash-equivalent assets.