In the latest chapter of the Prime money fund "Exodus" saga, the mammoth $42.6 billion private Prudential Core Taxable Money Market Fund converted into an Ultra Short Bond Fund late last week. While we have seen a number of Ultra-Short Bond Fund launches in the past year, we have not come across many direct Prime to Ultra-Short Bond Fund conversions. (See our next Bond Fund Intelligence issue for more. The only other one we recall seeing is Delaware Cash Reserves, which became Delaware Ultrashort in January.) The latest batch of "Prime-to-Govie" MMF conversions were also completed last week (and involved another Pru MMF). We discuss these topics, and a new update from BlackRock on the imminent BofA funds merger, below. We also report on one of the first "knock-on" effects of the pending SEC money market reforms -- advisor platforms switching their "cash" options from Prime to Govt -- below.
Prudential's "Prospectus Supplement" (497) filing says, "Effective on or about March 30, 2016, in connection with the amendments to Rule 2a-7 under the Investment Company Act of 1940, the following changes will take place: (1) Prudential Core Taxable Money Market Fund, a series of Prudential Investment Portfolios 2, will be repositioned from a money market fund to an ultra-short bond fund and will be renamed "Prudential Core Ultra Short Bond Fund"; and (2) Prudential MoneyMart Assets, Inc. will begin operating as a "government money market fund," as defined in Rule 2a-7, and will be renamed "Prudential Government Money Market Fund, Inc."
A separate SEC filing also mentions the Prudential Core transition. It says, "This prospectus provides information about the Prudential Investment Portfolios 2 (Core Fund), which consists of six separate series -- the Prudential Core Short-Term Bond Fund (Short-Term Bond Fund), the Short-Term Municipal Bond Fund, the National Municipal Money Market Fund, the Prudential Core Ultra Short Bond Fund (Ultra Short Bond Fund), the Government Money Market Fund and the Treasury Money Market Fund (each, a Fund and collectively, the Funds or Core Fund). Prior to March 30, 2016, the Ultra Short Bond Fund's name was Prudential Core Taxable Money Market Fund." (Note that the non-Prime Pru Core money funds appear inactive.)
Crane Data subscribers may notice that the former Prudential Core Taxable MMF was not listed in our Money Fund Intelligence newsletter or MFI XLS database. That's due to the fact that it's an "internal" or "private" fund (similar to others like Fidelity Cash Central Fund and Vanguard Market Liquidity Fund). While we don't track these funds in MFI XLS or MFI Daily (since they don't report performance publicly), we do include them in our `Money Fund Portfolio Holdings product and collection. In our last Holdings report, we show the recently converted (and about to be removed) Prudential Core Fund with $42.6 billion in assets. (The Federal Reserve Bank of New York also recently updated its Reverse Repo Counterparties List to remove Prudential Core Taxable MM Fund as a reverse repo counterparty.)
Prudential's brokerage sweep vehicle MoneyMart Assets ($672M), which converted to Prudential Govt MMF on 3/31, is one of several funds that converted from Prime to Govt last week. Others include: the $1.9 billion BBH Money Market Fund, which became BBH US Govt MMF (on 4/1); the $1.6 billion Cavanal Hill Cash Management, which turned into Cavanal Hill Govt Securities (on 4/1); and the $15.8 billion American Funds MMF, which, though it's invested in mostly government securities for some time, officially became American Funds US Govt MMF (on 4/1). Also, the $402 million John Hancock MMF will convert to a Government MMF on April 6, though there's been no name change indicated to date. (The next major bout of conversions will occur at the end of April/early May and will include Deutsche's wholesale exit from Prime and T. Rowe Price Prime Reserves.) Combined, these changes total $20.4 billion shifting to Govt from Prime. To date since October 2015, about $212.3 billion has shifted from Prime to Govt, with another $75.6 billion scheduled before October 14, 2016.
In related news, BlackRock's Head of Cash Management Tom Callahan sent out another update to clients, informing them that the pending BofA fund mergers had received shareholder approval. The letter states, "We are pleased to share an exciting update on our agreement with Bank of America's asset management business, BofA Global Capital Management, to transfer investment management responsibilities for approximately $94 billion of assets under management currently managed by BofA Global Capital Management to BlackRock."
He adds, "Yesterday, shareholders of the following series of the BofA Funds Series Trust approved the following fund reorganizations: BofA Cash Reserves and BofA Money Market Reserves into BlackRock TempFund; BofA Government Plus Reserves into BlackRock FedFund; BofA Government Reserves into BlackRock Federal Trust Fund; and BofA Treasury Reserves into BlackRock T-Fund. The BofA Funds reorganizations are expected to be completed on or about Monday, April 18, 2016, subject to certain closing conditions. We are excited to welcome our new investors and appreciate your continued partnership and business."
As we've mentioned, BofA funds' Tax Exempt MMFs aren't being integrated into the BlackRock platform and are being liquidated. Our pending April Money Fund Intelligence XLS removes these 9 Muni portfolios with a total of 43 funds (or share classes). The liquidated funds include: BofA CA Tax-Exempt Reserves; BofA Cash Reserve Investor; BofA CT Muni Reserves; BofA Govt Plus Reserve; BofA MA Muni Reserves; BofA Municipal Reserves; BofA NY Tax-Exempt Reserves; BofA Tax-Exempt Reserves; and BofA Treasury Reserve." (See our Feb. 12 News, "BofA Details Fund Mergers Into BlackRock MMFs; WSJ on Big Retail MMFs," and see our Nov. 10, 2015 News, "BlackRock Taking Over BofA MMFs in One of Biggest Acquisitions Ever" for more.)
We also are removing several other funds due to recent or imminent liquidations: American Beacon Money Market Select, Deutsche NY Tax-Free Money Fund, Deutsche Tax Free Money Fund, Deutsche Tax-Exempt CA MMF, and Putnam Tax-Exempt Money Market Fund. (See the "Changes" tab in MFI XLS and our most recent "prime2govt" spreadsheet for the latest updates.)
Finally, in what could signal the beginning of a second wave of Prime to government asset shifts, fund manager and investment advisor Calamos Investments switched its default money fund option from Fidelity Inst Prime MMP to Fidelity Inst MM Treasury Portfolio. Calamos used to have its own money fund, but liquidated it in 2009. (See our March 5, 2009 News, "Calamos Files to Close and Liquidate Government Money Market Fund.") A post on its website entitled, "Money Market Fund Offering Conversion - Frequently Asked Questions," describes the most recent changes in its "cash" option. Calamos explains, "As of March 1, 2016, Calamos shareholders can no longer buy shares of the Fidelity Institutional Prime Money Market Portfolio ("Fidelity Prime"). Our new money market fund offering is the Fidelity Institutional Money Market Treasury Portfolio ("Fidelity Treasury"). Below is a Q&A that may answer questions about the change."
The FAQ says, "Q1. Why is the Fidelity money market fund option being changed? The U.S. Securities and Exchange Commission (SEC) recently changed its rules related to money market funds which require that institutional prime money market funds float their net asset value per share price (NAV) to reflect the fair value of the assets being held. The current money market fund option offered by Calamos is Fidelity Prime, which falls under the new rules. The floating NAV requirement, which goes into effect October 14, 2016, does not apply to government money market funds. In order to minimize shareholder impact, Calamos is changing its money market fund option to Fidelity Treasury from Fidelity Prime. We urge shareholders to exchange their Fidelity Prime shares for Fidelity Treasury shares as soon as possible to avoid liquidation of the shares."
It adds, "Q3. Why did you choose Fidelity Treasury? We believe that offering Fidelity Treasury, a U.S. government Treasury fund that is not affected by the new SEC rules, is in the best interest of shareholders. Fidelity Treasury normally invests at least 99.5% of the fund's total assets in cash, U.S. Treasury securities and/or repurchase agreements for those securities.... Q6. When is the deadline to exchange into Fidelity Treasury? Fidelity Prime shareholders are strongly encouraged to exchange into Fidelity Treasury or liquidate their Fidelity Prime shares no later than 3 p.m. central time on June 30, 2016."
