Stampede into money market funds sparks fee bonanza for asset managers

Record inflows into US money market funds in 2023 have triggered a multibillion-dollar fee bonanza for the asset management industry, which for years treated the product as a loss-leader.

US money market fund providers – such as Fidelity, Vanguard and Charles Schwab – collectively earned $7.6bn in fees in 2023 as assets passed $6.3tn, according to government figures.

That was more than $1bn higher than in 2022 and a jump of around 35 per cent from 2021, before US interest rates began to rise, according to the data from the Office for Financial Research, a government agency. 

“We’ve been hit by a wall of cash. It’s just too hard to ignore an asset class that is giving you 5.5 per cent, risk free,” said Kim Hochfeld, global head of cash at State Street Global Advisors, where cash funds grew by 34 per cent this year.

Much of the phenomenon is due to retail investors keen to capitalise on high yields and the perceived safety of government debt.

Money funds, which invest in very short-term securities and offer daily access, are dominated by a handful of very large players led by Fidelity, Vanguard, JPMorgan and BlackRock.

The providers compete for cash with bank accounts and have benefited from more than a trillion dollars in inflows driven by rising interest rates and, earlier in the year, concern about instability among regional banks.

For the year as a whole the total has eclipsed even 2020, when cash flooded into money funds during the early stages of the pandemic. 

The big jump in revenues comes as a relief for money market funds. It follows a period when returns on short-term safe assets were so low many providers had to forgive part of their fees to avoid charging customers to put money in. BlackRock reported waiving a total of $607mn in fees between 2020 and 2022. 

The fees are calculated by multiplying average assets…