Understanding liquidity fees and redemption gates

Liquidity fees and redemption gates (“fees and gates”) remain mechanisms that may be incorporated to help ensure fair treatment towards all money market fund (“MMF”) investors in times of uncertainty.

BlackRock Cash Management’s core objectives remain to seek maintenance of capital, liquidity and yield –in that order. Following years of experience managing our funds through volatile markets we have maintained our commitment to this philosophy, backed by the breadth and scale of our global platform. While we do not currently anticipate the need to implement these tools, we feel it is important for investors to understand their function, utility, and intention.

What are liquidity fees and redemption gates?

For investors who require their cash in times of stress, under certain circumstances, a liquidity fee may be levied in order to pay for that access (i.e. investors might be required to pay a fee if they redeem shares during this time). This fee may be applied at the discretion of the fund’s board of directors in the best interests of the shareholders.

A redemption gate is another measure that may be implemented by a fund’s board of directors, under certain circumstances, that limits redemptions in a fund for a short period of time (up to 15 business days in a 90-day period). Its purpose is to prevent a run on a fund in times of market stress.

European Money Market Fund Reform prescribed scenarios for public debt constant net asset value (CNAV) and low volatility net asset value (LVNAV) MMFs

1. If the weekly maturing assets of the fund fall below 30% of total assets and daily net redemptions exceed 10% of total assets on a single working day, the fund’s Board has the discretion, but not obligation, to implement liquidity fees and/or redemption gates.
2. If the weekly maturing assets of the fund fall below 10% of total assets, the fund’s Board is obliged to decide whether to implement liquidity fees and/or redemption gates. Importantly, fees and/or gates may not be implemented in any fund for more than 15 days out of any 90-day period.

Context and rationale

Although we believe that it is unlikely these thresholds would be crossed, if such an event were to occur, fees and/or gates would serve as a valuable mechanism in the interest of shareholders as a whole.

We have sought to keep a meaningful liquidity buffer above the prescribed regulatory thresholds across our LVNAV and public debt CNAV money market funds and have successfully maintained liquidity levels well in excess of the 10% daily liquid assets and 30% weekly liquid assets.

Our funds have adhered to this policy every day since long before the implementation of these regulations, which we believe demonstrates our commitment to serving as a fiduciary.

Please contact your BlackRock relationship manager to learn more about fees and gates, or how we manage liquidity in BlackRock’s MMFs.