The 19th largest money market fund manager, Franklin Templeton, recently filed with the Securities and Exchange Commission, to convert all of its Prime portfolios into Government money funds, including the Franklin Money Fund, Franklin Templeton Money Fund, and the Franklin Institutional Fiduciary Trust (IFT) Money Market Portfolio. Overall, these 3 portfolios have about $24.5 billion in assets. Franklin is the latest in a parade of money fund providers filing to convert Prime assets to stable NAV Government funds in response to SEC reforms. So far, about $200 billion worth of Prime funds have declared their intent to convert to Government funds. Of course, it remains to be seen whether those assets will stay put if interest rates go up and the spread between Prime and Government funds widens. Below, we recap the latest Prime to 'Govie' move, as well as the others that have been announced so far.
The filing for the $1.6 billion Franklin Money Fund says, "In connection with amendments to Rule 2a-7 under the Investment Company Act of 1940, which is the primary rule governing the operation of money market funds, the Fund's board of trustees approved changes to the Fund's investment policies to allow the Fund to qualify and begin operating as a "government money market fund," as defined in the Amended Rule, effective November 1, 2015. The Fund will invest, through The U.S. Government Money Market Portfolio (currently named "The Money Market Portfolio"), at least 99.5% of its total assets in government securities, cash and repurchase agreements collateralized fully by government securities or cash. For purposes of this policy, "government securities" mean any securities issued or guaranteed as to principal or interest by the United States, or by a person controlled or supervised by and acting as an instrumentality of the government of the United States pursuant to authority granted by the Congress of the United States; or any certificate of deposit for any of the foregoing."
It explains, "The Fund will continue to use the amortized cost method of valuation to seek to maintain a stable $1.00 share price and does not currently intend to impose liquidity fees or redemption gates on Fund redemptions. Please note, however, that the Board may reserve the ability to subject the Fund to a liquidity fee and/or redemption gate in the future, after providing prior notice to shareholders and in conformance with the Amended Rule. In connection with these changes, the Fund will change its name to "Franklin U.S. Government Money Fund," also effective November 1, 2015." The $678 million Franklin Templeton Money Fund will also be converted into the Franklin Templeton US Government Money Fund.
The filing for the Institutional Fiduciary Trust -- Money Market Portfolio, also says, "In connection with amendments to Rule 2a-7 under the Investment Company Act of 1940 ... the Fund's board of trustees approved changes to the Fund's investment policies to allow the Fund to qualify and begin operating as a "government money market fund" ... effective November 1, 2015. `The Fund will invest, through The U.S. Government Money Market Portfolio (currently named "The Money Market Portfolio"), at least 99.5% of its total assets in government securities.... The Fund will continue to use the amortized cost method of valuation to seek to maintain a stable $1.00 share price and does not currently intend to impose liquidity fees or redemption gates on Fund redemptions." Note: The $695 million Franklin California Tax-Exempt Money Fund wasn't mentioned in these filings.
To date, approximately $199.0 billion worth of Prime funds have filed to convert to Government funds, led by the first and largest, Fidelity Cash Reserves. The pending shift to date involves roughly 20 Prime to Government fund conversions across 5 different money fund managers, including Fidelity, BlackRock, Deutsche, T. Rowe Price, and Franklin. Franklin, referenced above, would represent the next biggest shift after Fidelity, with its plans to move $24.5 billion from Prime to Government. (MFS and a handful of other smaller managers have also previously shifted funds from Prime to Government.)
As mentioned, Fidelity was the first to announce a conversion back in late January (see our Feb. 2 News, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt") when it stated that it would transform 4 Prime funds to Government funds. These moves involve $142.3 billion (current assets), including the $113.8 billion Fidelity Cash Reserves, which will become Fidelity Government Cash Reserves. The others include the FMMT Retirement Money Market Portfolio (converting into FMMT Retirement Government Money Market Portfolio II), VIP Money Market Portfolio (converting into VIP Government Money Market Portfolio), and CMF Prime Fund (merging into Fidelity Government MMF). Changes are expected to be effective in the 4th quarter of 2015.
On July 31, BlackRock (see "BlackRock to Liquidate 3 Muni MMFs, Convert Old Merrill Primes to Govt") said it was moving $18.0 billion from Prime to Government across 6 portfolios. The portfolios being converted include the BIF Money Fund (which used to be CMA Money Fund, at one point the largest money fund in the world), Ready Assets Prime Fund, and Retirement Reserves Money Fund. Also, FFI Premier Institutional Fund, FFI Institutional Fund, and FFI Select Institutional Fund will be converted from Prime Institutional to Government. These 3 funds used to be Merrill Lynch's Funds for Institutions lineup.
Also, on July 21, Deutsche Wealth and Asset Management (see "Deutsche Announces Reform Plans, Will Convert Most Prime MFs to Govt"), the 18th largest money fund manager, announced that it will convert all of its large Prime Institutional portfolios into Government funds, including Cash Management Fund; Cash Reserves Fund Institutional; Deutsche Money Market Series; Deutsche Money Market VIP; and Prime Series of Cash Reserve Fund, Inc. The 5 funds total $6.9 billion. Deutsche will continue to offer its $10.00 a share prime "Variable NAV Money Fund.
In addition, as we wrote on August 21 (see "T Rowe Price to Launch Prime Inst MMF"), T. Rowe Price told ignites.com it will convert its largest money market fund -- the $6.4 billion Prime Reserve -- to a Government fund, though the company will also launch a new Prime Institutional fund. Regarding previous conversions, we reported in March that MFS Investment Management had already converted $499 million from Prime to Government -- specifically, the $377 million MFS Money Market Fund and $122 million MFS Cash Reserves. Finally, Goldman Sachs also announced in July it was converting the $194 million Goldman VIT Money Market Fund into the Goldman Sachs VIT Government MMF.
