BlackRock moves to protect net asset value of money market fund

By Simon Jessop

LONDON (Reuters) - Global fund manager BlackRock said on Friday it had written to investors in one of its money market funds to tell them it planned to trigger a clause aimed at protecting the value of the fund's assets.

Returns from money market funds in Europe have been hit by a weakening in trading conditions as the European Central Bank has cut its deposit rate to 0.2 percent, some economic data in the region has worsened and as geopolitical risk has increased.

The move, called a Reverse Distribution Mechanism, allows the firm to rebalance the net asset value of a fund so that it remains stable even though yields elsewhere may be negative.

 

BlackRock said it sent a letter to investors in the ICS Euro Government Liquidity Fund on Wednesday to give 14 days notice of its intention to switch on the mechanism, although it stressed this did not imply the yield of the fund would turn negative.

"This is a situation that all Euro money market fund providers face as they work with institutional clients with cash management requirements within the new normal of negative yields," BlackRock said in a statement.

"In the case of net negative portfolio yields, due to all securities that the fund can invest in trading negatively, maintaining a stable net asset value (NAV) would be impossible without having appropriate mechanisms in place or undergoing structural changes."

(Reporting by Simon Jessop. Editing by Clare Hutchison)