In a letter to clients posted last week, Invesco Fixed Income announced the retirement of its Head of Global Liquidity, Lu Ann Katz. The Atlanta-based investment manager also made a series of other internal appointments within its "cash" team. We review these "People" moves below, and we write on the rate outlook and most recent Prime to government moves. Yesterday's Wall Street Journal discussed the uncertainty of future interest rate hikes in 2016 in the article, "The Fed's Interest-Rate Path: Who Has the Map?." We also excerpt commentary from Federated's CIO for Global Money Markets, Debbie Cunningham, on rates in her latest "Month in Cash" piece. Finally, BlackRock converted $18.1 billion of assets from Prime to Government yesterday (1/4), and we recap this shift below. (See our July 31, 2015 News, "BlackRock to Liquidate 3 Muni MMFs, Convert Old Merrill Primes to Govt," and our Dec. 22 News, "More Funds Jump on Prime to Govt Conversion Bandwagon; Mergers.")
The Invesco letter, from Fixed Income CEO Greg McGreevey, says, "At Invesco Fixed Income (IFI), we are dedicated to maximizing the expertise and talents of our investment professionals in order to provide positive outcomes for our clients. With that in mind, we wanted to share with you some details regarding some internal moves and expanded roles for a number of key leaders within IFI."
He explains, "Lu Ann Katz, Head of Global Liquidity for IFI, has decided to retire effective March 2016 after 23 years with Invesco. Ms. Katz has made numerous contributions to our firm, having served in a number of fixed income investment leadership roles in Houston, London, and Atlanta. Ms. Katz will continue to be involved as needed to ensure a smooth transition internally and externally. I want to thank Lu Ann for her many years of service and commitment to the organization. We wish her the very best in the next exciting chapter of her life." (See our Nov. 28, 2014 News, "MFI Profiles Invesco's Katz on Adapting to a Changing Liquidity Market" and our November 2014 Money Fund Intelligence for our latest "profile" with Katz.)
Invesco's statement continues, "Tony Wong will assume business and strategic oversight for our Global Liquidity business in addition to his current responsibilities as Head of Global Credit Research. Mr. Wong has been with IFI since 1996, and has extensive experience across the platform." Further, "Laurie Brignac, Head of Government/Short Duration/EMEA Portfolio Management and Senior Portfolio Manager, will assume responsibility for all portfolio management within the Invesco Global Liquidity team, working closely with Justo Gonzalez. Mr. Gonzalez will expand his responsibilities as the Head of Global Liquidity Research to include strengthening our business partnerships."
It adds, "Esther Chance will take on new responsibilities as Head of IFI Platform, an important role for the entire fixed income business. In this role, Ms. Chance will partner with key supporting functional groups, leading our global efforts to strengthen our engagement and processes across a variety of support activities. This position will leverage her strong experience in both investments and operations. She will work closely with Aaron Uhde, our Chief Administration Officer for IFI."
McGreevey concludes, "It's important to note that there is no change to our process, funds, or fund objectives as a result of these internal moves. The Invesco Global Liquidity team is highly experienced with tremendous bench strength; these changes will provide greater strategic focus and alignment with our Global Liquidity business." Crane Data wishes Katz the best of luck and thanks her for her extensive service to the money fund industry. We'd also like congratulate the other Invesco team members on their new positions.
Now that the first Fed hike is a done deal, what's next? Yesterday's WSJ "Fed's Interest-Rate Path" story," says the "only certainty is more uncertainty on which way rates will go." It explains, "Federal Reserve policy makers and credit-market participants have a fundamental disagreement about what will happen to interest rates this year. The uncomfortable prospect for investors is that either group could turn out to be woefully wrong."
It explains, "The debate over how far and fast the Fed may raise rates this year was kicked off by its move last month to raise the target range on overnight rates for the first time in nearly a decade. Now, projections from policy makers center on a forecast that they will further raise their target range by a full percentage point over the course of 2016, to 1.25% to 1.5%. On the other hand, federal-funds futures, which price on traders' rate expectations, tell a different story. They imply the Fed will raise its rate range by just a half point."
Federated's Cunningham writes in a piece, "Now Things Get Interesting," "When the Federal Reserve finally hiked rates last month after seven years at near zero, cash managers breathed a sigh of relief. But our next breath was just as deep as we got ready for what's next. The frustrating certainty of postponed action has been replaced by the uncertainty of a rising-rate environment. I'll take the uncertainty any time, but 2016 is going to be intriguing. Perhaps a better word is "shifting." Coinciding with moving the target range to 0.25-0.50%, the Fed implied in its economic projections that it would raise that by 25 basis points four times in 2016 to reach 1.375% at year's end. But let's face it, this could change at any one of its Federal Open Market Committee (FOMC) meetings."
She explains, "On a deeper, more technical level, I think the rate picture next year is also going to be determined by cash flows. When we started talking about money market reform in 2014, there was a high expectation that more than half of the $1.5 trillion in Prime money funds would go into governments. However, recent surveys and client discussions lead us to surmise that a larger portion likely will stay in Prime funds.... It may be a portion of deposits move to the money fund market where a competitive yield would have the added benefit of liquidity. And if that is the case, after taking a hit to assets under management, Prime funds as an industry may grab some of that back in 2017 if the outflows create a wider spread that will attract money back to them. That especially could be the case as investors become more comfortable with the implementation of the floating NAV."
Finally, Cunningham comments, "And let's not forget the news on the reverse repo program. This normally flies under the radar, but now that the Fed intends to use the overnight facility to set a floor for the new target fed funds range, it is front and center. The FOMC uncapped the amount of collateral approved participants can ask for from $300 billion ceiling to about $2 trillion of eligible treasury securities. It seems that would be enough to satisfy the equation for demand, but you just don't know. I think supply and demand is going to have a whole lot to do with next year's rate outlook, as much as the Fed. So is there uncertainty? Yes, but we are prepared, not the least of which is a continued focus on shorter Weighted Average Maturity (WAM), in the mid to high 30s, and elevated percentages of floating-rate securities and liquidity."
In other news, BlackRock shifted $18.1 billion of its money fund assets from Prime to Government funds yesterday. These latest funds to "go government" include: the $2.5 billion BBIF Money Fund portfolio; the $5.1 billion BIF Money Fund; the $1.9 billion FFI Institutional, which became BlackRock Govt Inst Fund; the $3.8 billion FFI Premier Institutional, which became BlackRock Premier Govt Inst Fund; the $1.5 billion FFI Select Institutional, which became BlackRock Select Govt Inst Fund; the $2.2 billion Ready Assets Prime, which became Ready Assets Govt Liquidity Fund, and the $1.2 billion Retirement Reserves Fund. To date, $190.5 billion in money fund assets have converted from Prime to Government, representing 72.2% of the $263.7 billion in total that is slated to convert between now and Oct. 14, 2016.
