We've come across yet more funds that have converted from Prime to Government recently, including Harbor Money Market Fund, UBS PACE Select Money Market Investment Fund, and Payden Cash Reserves. Among the most recent batch of conversions is the $111 million Harbor Money Market Fund. Its March 1 "Summary Prospectus update" explains, "The Harbor Money Market Fund has adopted a policy to invest 99.5% or more of the Fund's total assets in cash, "government securities" and/or repurchase agreements that are "collateralized fully" (i.e.collateralized by cash or government securities) so as to qualify as a "government money market fund" under Rule 2a-7 of the Investment Company Act." We review the latest batch below, and we also excerpt from JPMorgan Securities latest update and a piece by iTreasurer. Crane Data now shows a total of $272.6 billion slated to convert from Prime to Govt, with $191.9 billion worth of funds already converted, or 70.4%. By April 1, another $19.9 will have converted from Prime to "Govie".
Harbor's prospectus explains, ""Government securities," as defined under the Investment Company Act and interpreted, include securities issued or guaranteed by the United States or certain U.S. government agencies or instrumentalities.... Effective March 1, 2016, the Fund changed its principal investment strategies. The past performance data in the bar chart and table reflect the Fund's prior principal investment strategies." The fund is subadvised for by Fischer Francis Trees and Watts.
Also, the $311 million Payden Cash Reserves fund has converted from Prime to Government, but will retain its name. A Feb. 29 SEC filing states, "The Fund invests at least 99.5% of its total assets in cash, Government Securities, and repurchase agreements collateralized by cash or Government Securities. "Government Securities" generally means any security issued or guaranteed as to principal or interest by the U.S. Government or certain of its agencies or instrumentalities; or any certificate of deposit for any of the foregoing."
It explains, "The Fund intends to be a "government money market fund," as defined by Rule 2a-7 under the Investment Company Act of 1940, as amended, that seeks to maintain a stable price of $1.00 per share by using the amortized cost method to value portfolio securities and rounding the share value to the nearest cent. The Fund does not currently intend to impose liquidity fees or redemption gates on Fund redemptions; however, the Fund's Board of Trustees may reserve the ability to subject the Fund to a liquidity fee and/or redemption gate in the future, after providing prior notice to Fund shareholders."
In addition, the $218 million UBS Pace Money Market Investments also converted, to UBS Pace Government Money Market Investment Fund late last year, according to the fund's portfolio and a recent SEC filing. The Prospectus Supplement says, "On September 22, 2015, the Portfolio's Board of Trustees approved a new policy on behalf of the Portfolio to invest at least 99.5% of its total assets in cash, government securities and/or repurchase agreements that are collateralized fully by cash or government securities to allow the Portfolio to qualify as a government money market fund, as defined under the amended Rule 2a-7 of the Investment Company Act of 1940. In addition, the Board approved changing the Portfolio's name to PACE Government Money Market Investments to ensure that the Portfolio is understood to be a government money market fund.... The changes are expected to become effective on or about November 28, 2015."
A filing submitted Sept. 25, 2015 adds, "So that the fund may qualify as a government money market fund, the board of trustees for the fund approved the adoption of a non-fundamental investment policy requiring the fund to invest 99.5% or more of its total assets in cash, government securities, and/or repurchase agreements that are collateralized fully (i.e., collateralized with cash and/or government securities). The Board also determined to approve modifications to the fund's principal investment strategies to reflect this new policy."
UBS continues, "In addition, the Board determined that the fund: (i) will continue to use the amortized cost method of valuation to seek to maintain a $1.00 share price and (ii) will not be subject to a liquidity fee and/or a redemption gate on fund redemptions.... Prior to November 28, 2015, the fund was named PACE Money Market Investments, and the fund operated under certain different investment policies." (See too our Feb. 25 News, "Hits Keep Coming to Prime, Tax-Ex: UBS Sweeps Filings, Putnam T-E Exit, where we reported on UBS Liquid Assets Fund's conversion to Government.)
JP Morgan Securities discusses the potential for investors to shift from Prime to Govt in its latest "Short Term Market Outlook and Strategy." They write, "Away from the Fed, focus in the money markets is increasingly turning towards MMF outflows. As we now head into the middle of March, we are only about seven months away from the MMF reform deadline in October. To this end, we have still yet to see any meaningful reform outflows driven by active shareholder withdrawals. Indeed, as of the beginning of last week, total prime fund AuM was down by $18bn YTD, driven almost entirely by prime to government fund conversions."
Strategists Alex Roever, Teresa Ho, and John Iborg continues, "Currently, over $200bn in prime fund AuM has officially been converted to government fund status. Over the next six months, we look for an additional $64bn to be converted. Still, while we have yet to see any visible reform-related investor outflows, anecdotally, we have heard of some smaller scale shifts beginning to take place."
Finally, in related news, iTreasurer posted the story, "Not Enough Urgency Ahead of MMF Reform?" that includes some new color on how Treasurers feel about Prime funds. It says, "Later this year money market funds are going to change dramatically as new Securities and Exchange Commission rules kick in. Prime funds are going to adopt a floating net asset value regime and will also employ if necessary limits to accessing fund cash (via gates) and penalties for actually taking the cash out (via fees).... Some companies have been taking steps to prepare, seeking alternatives or making their investment policies more dynamic and flexible. But for the most part, many are taking a wait-and-see attitude, choosing to see how the rules will impact the market."
It continues, "Other surveys show many companies are happy to stay in prime MMFs. According to a SunGard survey from late 2015, 60% of treasurers in the US expect to invest in prime MMFs "at a similar level post-2016 SEC reforms." Some 37% expect to decrease their holdings, anticipating that accounting, intraday liquidity and investment policy constraints will be big headaches.... In a NeuGroup pre-meeting survey for its Treasury Investment Managers' Peer Group-2, 23% of respondents said they were considering switching to government-only MMFs; 10% plan to switch to separate accounts; 10% are not concerned; and the remainder are making some type of other change or have not decided yet."
