OppenheimerFunds, the 25th largest money fund manager, issued a statement on Friday stating that all of their Prime funds will be convert to Government funds later in 2016. Currently, Oppenheimer has $10.1 billion in money fund assets, all of which are currently in Prime funds. The move brings the assets converted recently or planning to convert from Prime to Government to almost $250 billion to date. Also, another firm that announced a major shift out of Prime into Government earlier this year, Deutsche Wealth and Asset Management, also announced the launch of two ultra-short term bond funds on Monday.
Oppenheimer's "Money Market Reform Announcement," explains, "To act in the best interest of our clients while also ensuring compliance with the upcoming money market reform rules that will be effective in October 2016, Oppenheimer Funds' money market offerings will transition to government money market funds. Government money market funds are required to hold at least 99.5% of its assets in cash, government securities, and repurchase agreements that are collateralized fully; are permitted to maintain a stable net asset value; and are not required to impose liquidity fees or redemption gates."
This latest announcement says that the $1.8 billion Oppenheimer Money Market Fund will become Oppenheimer Government Money Market Fund; the $850 million Oppenheimer Cash Reserves will become Oppenheimer Government Cash Reserves; and the $7.5 billion Oppenheimer Institutional Money Market Fund will become Oppenheimer Institutional Government Money Market Fund on Sept. 28, 2016. Also, they say that Oppenheimer Money Fund/VA will become Oppenheimer Government Money Fund/VA on April 29. 2016.
The release adds, "Following extensive consultation with our clients, the Board agreed that this decision is in the best interests of shareholders. Adapting the Funds to the new policy will not require shareholders to vote; however, they will be notified of these changes through prospectus supplements this month."
Among the major Prime to Government conversions to date: Franklin converted over $25 billion and Dreyfus converted $2.2 billion (Inst Reserves) on Nov. 1; Fidelity converted its $16.1 billion CMF Prime Fund on Nov. 13; and the $115 billion Fidelity Cash Reserves, the $12 billion Fidelity MMT: Retirement Port II, and $1.4 billion American Century Premium MMF will convert on Dec. 1. In 2016, BlackRock will convert over $18 billion in BIF, BBIF, FFI, Ready Assets and Retirement Reserves funds on Jan. 4, the $15.8 billion American Funds MMF will convert on April 1, and Deutsche will convert $18.1 billion in MMFs on May 2. (No date has been announced for the $6.5 billion T. Rowe Price Prime Reserves yet.)
Deutsche Asset & Wealth Management also made news, issuing a press release announcing the launch of two new ultra-short term bond funds. (We first reported this in the October issue of our Bond Fund Intelligence newsletter.) In July, Deutsche announced that it was converting 5 Prime portfolios with a total of about $18 billion in assets 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. It will keep just one Prime Institutional Fund, the $113 million Deutsche Variable NAV Money Market Fund. These new ultra-short funds, which occupy the space just outside of 2a-7 money market funds, will complement the company's money market fund offerings.
Their release explains, "Deutsche Asset & Wealth Management today announced the offering of two fixed income funds, Deutsche Limited Maturity Quality Income Fund (Institutional Class: DLTIX, Investment Class: DLTVX) and the Deutsche Ultra-Short Investment Grade Fund (Institutional Class: DUSNX, Investment Class: DUSVX). Each Fund seeks to provide investors with current income consistent with the preservation of capital and liquidity. The Funds, while not money market funds, are meant to serve our corporate clients and financial intermediaries' evolving needs in light of the SEC's Money Market Reform, which goes into effect October 2016."
Joe Benevento, Chief Investment Officer for the Americas and Co-Head of Global Fixed Income for Deutsche AWM, "Deutsche AWM is committed to creating investment solutions across the spectrum of conservative fixed income products amid the evolving regulatory landscape.... We will continue to assess the market and deliver innovative products in an ongoing effort to identify the changing needs of our clients."
The press release continues, "Deutsche Limited Maturity Quality Income Fund seeks to achieve its objective by investing mainly in high quality, short-term, US dollar denominated fixed-income instruments. Deutsche Ultra-Short Investment Grade Fund seeks to achieve its objective by investing in investment grade US dollar denominated fixed-income instruments. Both Funds offer two share classes, Institutional Shares and Investment Class, and Geoffrey Gibbs, Head of the US Liquidity Management Group, serves as the Lead Portfolio Manager of the team managing each Fund."
In other news, Fidelity Investments released a new commentary, "Door Open for December Interest Rate Increase" by Michael Morin and Kerry Pope. It says, "In October, the House of Representatives and Senate passed a budget agreement that raised the debt ceiling and paved the way for a spending bill to keep the government funded.... Significant for the money markets sector, lifting the debt ceiling will enable the Treasury to meaningfully increase its T-bill issuance to rebuild its cash on hand to about $250 billion, from an estimated $30 billion. The additional supply should pressure bill yields and repurchase agreement rates higher. While the two-day FOMC meeting concluded on October 28 with no rate change, there were two interesting, albeit subtle, alterations in the Fed's accompanying statement."
Finally, they add, "All in all, investors interpreted the statement as more hawkish than they had anticipated. At the end of October, fed funds futures pointed to a 50% probability of a rate hike -- assuming an average fed funds rate of 0.375% after the first hike. At October's FOMC meeting, 13 of the 17 officials still expected a rate hike this year, provided the economy grows as forecast. The Committee will determine whether it will be appropriate to raise rates at its December 15–16 meeting, based on its assessment of progress toward achieving its objectives of maximum employment and 2% inflation."
