JP Morgan Asset Management is streamlining the number of 'AAA' ratings on its money market mutual funds, removing triple-A ratings on a number of its money market funds, and it recently added a new ultra-short "offshore" money fund. The ratings removals include funds rated 'AAAm' by S&P and 'Aaa-mf' by Moody's and involve U.S. money funds, as well as "offshore" Luxembourg-domiciled money funds. On the changes, JP Morgan Asset management's John Donohue, CEO of Investment Management Americas says, "The three major NRSRO's views of credit and risk management have diverged significantly over the past few years and have imposed differing investment requirements on rated money market funds. Our request to remove these ratings follows an ongoing global strategic review of all of our ratings across the J.P. Morgan range of money market funds. Removing these ratings does not signal any change in the investment policies or credit process of the money market funds."
Specifically, JP Morgan AM has had its Moody's triple-A ratings removed from two "offshore" funds, JP Morgan Euro Liquidity Fund and JP Morgan Sterling Liquidity Fund. A press release issued by Moody's, entitled, "Moody's Withdraws the Aaa-mf Money Market Fund Ratings of Two JPMorgan Funds," says, "Moody's Investors Service, has today withdrawn the Aaa-mf money market fund rating of JPMorgan Liquidity Funds -- Euro Liquidity Fund and JPMorgan Liquidity Funds -- Sterling Liquidity Fund. The Funds are managed by JPMorgan Asset Management (UK) Limited. Moody's has withdrawn the rating for its own business reasons." Each of these funds, however, remains triple-A rated by both S&P and Fitch Ratings.
JP Morgan has also requested to have S&P triple-A ratings removed from several U.S. rated funds, including JPMorgan US Government, JPMorgan US Treasury Plus, JPMorgan 100% US Treasury Securities, JPMorgan Federal MMF, and all their various share classes. The US Government Fund remains triple-A rated by Moody's and Fitch, while the other three remain Aaa-mf rated by Moody's. JP Morgan also dropped its S&P ratings on three Luxembourg-domiciled funds -- JPMorgan Liquidity Funds – Sterling Gilt Liquidity Fund, US Dollar Government Liquidity Funds, and US Dollar Treasury Liquidity Fund.
JP Morgan also added a rating to a new ultra-short "offshore" money fund. A press release entitled, "Moody's Assigns Aaa-mf Rating to JP Morgan Liquidity Funds -- US Dollar Current Yield Liquidity Fund," says the ratings firm assigned a Aaa-mf rating to the new "offshore" fund, JP Morgan US Dollar Current Yield Liquidity Fund. The release says, "The rating reflects Moody's view that the fund will have a very strong ability to meet the dual objectives of providing liquidity and preserving capital. This view is supported by the fund's high scores for each of the key rating factors, including credit quality, asset profile, liquidity and exposure to market risk.... The rating also benefits from the expectation that the fund will maintain a very short weighted average maturity (WAM) and low asset concentration which results in a score of '1' for our assessment of the fund's asset profile under Moody's money market fund rating scorecard. We expect that the fund's WAM will typically not exceed 10 days."
It continues, "While the fund's shareholder base is likely to exhibit some lumpiness as the fund ramps up, our expectation is that the fund will maintain a strong liquidity profile supported by high levels of overnight and near-term liquidity in the portfolio and the advisor's track record with respect to disciplined liquidity management. Overnight liquidity will typically be in the form of overnight commercial paper and/or time deposits as well as repurchase agreements. The target investor base for this fund will include clients of large US banks who may be impacted by these banks' decision to shed non-operational deposits in response to new bank regulatory reforms. JPMIM is positioning the Fund as a substitute to a bank deposit product to capture these assets. The fund maintains low exposure to market risk resulting in a NAV Stress score of '1' under Moody's money market fund rating scorecard consistent with other Aaa-mf rated prime money market funds. We expect the fund's sensitivity to market risk to remain very low supported by the high quality of the investment portfolio and the a very short WAM."
JP Morgan is the second largest money market fund manager in the U.S. with $240.5 billion (it has $368.5 billion in global money fund assets) and the largest manager of triple-A rated money funds. Among its U.S. domestic money funds, $215.4 billion were AAA rated as of April 30 (not including these changes), the most of any fund sponsor. That represents 15% of total AAA rated MMF assets. Federated was second among managers of triple-A rated funds with $155.9B (10.8%), followed by Dreyfus with $140.5B (9.8%), BlackRock, and Goldman Sachs, both of which had $139.8B (9.7%).
Crane Data's latest Money Fund Intelligence XLS shows that as of April 30, 2015, 732 MMF funds totaling $1.541 trillion, or 62.8% of all money market fund assets, were AAA rated. Most of the AAA rated funds tend to be Institutional as $1.260 trillion of AAA rated funds were in Institutional assets. Breaking it down by rating agency, S&P had the most with $1.467 trillion, or 59.8% of U.S. money fund assets, rated as AAA. Moody's was next with $1.357 trillion, or 55.3%, followed by Fitch with $521 billion, or 21.3%.
Going forward, we expect to see more ratings changes, as the re-classification of money market funds to comply with SEC reforms segments funds into either "retail" or "institutional" and as new funds are launched or liquidated in the coming 16 months. Also, supply constraints, repo counterparty issues and the need to "barbell" and add yield on the longer-end are causing some managers to weigh rating historical role against the restrictions some are placing on fund investments.
