Touchstone Investments became the latest manager to announce its exit from the money market fund business, we learned from mutual fund website Ignites.com. Touchstone, which has $1.1 billion in money fund assets according to Crane Data, is currently the 46th largest money market fund manager. It would be the fourth money manager to exit the space since June, and perhaps the first casualty, at least in part, of the SEC's money fund reforms. (GE Capital, Williams Capital (which outsourced to Northern Trust), and Virtus, are the other three, according to Crane Data's October 2014 MFI.) Touchstone will liquidate all of its money fund portfolios early in 2015 -– Touchstone Institutional MMF (TINXX) with $546 million as of 11/30/2014; Touchstone MMF S (TMSXX) with $260M; Touchstone MMF A (TMMXX) with $67M; Touchstone Ohio Tax-Free MMF Institutional (TIOXX) with $146M; Touchstone Ohio Tax-Free MMF A (TOHXX) with $61M; Touchstone Tax-Free MMF S (TTSXX) with $23M; and Touchstone Tax-Free MMF A (TTFXX) with $8 million.
Touchstone's SEC filing, dated Dec. 22, says, "At a meeting of the Board of Trustees of Touchstone Investment Trust held on November 20, 2014, the Board approved a plan to close and liquidate each of Touchstone Institutional Money Market Fund and Touchstone Money Market Fund on or about March 20, 2015 (the "Liquidation Date")." Then in an updated filing, it says, "The Liquidation Date has been postponed," so it's not clear what the exact timing of the liquidation will be.
A separate filing on a special shareholder meeting adds, "The Board of Trustees (the "Board") of Touchstone Investment Trust, a Massachusetts business trust (the "Trust"), has called a combined special meeting of shareholders of Touchstone Institutional Money Market Fund and Touchstone Money Market Fund ... to be held on February 20, 2015 at 10:00 a.m. Eastern Time (the "Special Meeting"), at the offices of the Trust, 303 Broadway, Suite 1100, Cincinnati, Ohio 45202. The Board has unanimously approved a Plan of Liquidation with respect to each Fund (each, a "Plan"), which provides for the complete liquidation of all of the assets of the Fund. The Board has directed that a proposal to liquidate each Fund pursuant to its Plan be submitted to a vote of each Fund's shareholders for their consideration at the Special Meeting (the "Proposal")."
It adds, "If the shareholders of a Fund approve the Plan, the Fund will cease its investment operations as soon as practicable and will not engage in any investment activities, except as necessary to effect the liquidation of the Fund, including winding up its business, converting its portfolio securities to cash, discharging or making reasonable provision for the payment of all of its liabilities and making liquidating distributions to shareholders on a pro rata basis in accordance with its Plan. Subject to approval by a Fund's shareholders, the date of liquidation for each Fund is anticipated to be on or about March 20, 2015."
The "Question and Answer" portion of the SEC filing explains the reasoning behind the move. "At meetings of the Board held in August and November 2014, the Funds' investment advisor, Touchstone Advisors, Inc. ("Touchstone"), informed the Board that it intended to cease managing U.S. money market funds. Based on Touchstone's presentation and recommendation, the Board concluded that the continued operation of the Funds is not in the best interests of the Funds or their shareholders considering all relevant factors, including, without limitation: 1) The Funds have been unable to gather significant assets outside of the Touchstone Funds complex and distribution opportunities are limited; 2) Additional regulatory changes to Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act") are expected to increase the Funds' expenses and negatively impact the Funds' ability to offer a competitive return to their shareholders."
It continues, "3) Since April 2009, the Funds have been unable to pay all their expenses and offer a competitive return to their shareholders. Touchstone has been reimbursing a portion of the Funds' expenses, but this has not resulted in any material increase in assets that would provide additional economies of scale. Touchstone has informed the Board that it does not intend to renew the expense limitations or to continue the voluntary fee waivers and expense reimbursements with respect to the Funds, although Touchstone will continue to partially waive and/or reimburse certain Fund fees and expenses as necessary to prevent each Fund's yield from dropping below zero. Absent fee waivers and expense reimbursements, the Funds' returns would likely make the Funds unattractive to new investors."
Touchstone's filing continues, "4) There are no other suitable funds in the Touchstone Funds complex into which the Funds could be merged. Any benefit to shareholders of the Funds of merging with a third-party fund would likely be outweighed by the expenses of such a merger. The assets of the Funds held by Touchstone and its affiliates likely would not move to a third party, and the Funds would likely be unattractive to another investment advisor because, among other things, Touchstone could not assure it that the remaining assets in the Funds would not be redeemed in a relatively short time after any such transaction."
However, it adds, "If you hold Fund shares through a Touchstone IRA or Coverdell ESA, and you do not provide instructions on the disposition of your shares by the Liquidation Date, your shares held on the Liquidation Date in a Fund will be liquidated and the proceeds used to purchase shares of Touchstone Ultra Short Duration Fixed Income Fund as a non-reportable transfer, in accordance with the applicable provisions of the custodial account agreements, to avoid potential tax penalties." According to Crane Data's Bond Fund Intelligence XLS, Touchstone Ultra Short FI A has $730 million in assets, Touchstone Ultra Short FI Y has $245M, and Touchstone Ultra Short FI Z has $397M.
For more on recent fund liquidations, see the October issue of our Money Fund Intelligence ("Rates, Reforms Driving Consolidation") and our Dec. 15 "Link of the Day," "JPMorgan Liquidates OH, MI Muni MFs."
