As we wrote in Friday's Link of the Day, "Prime and Muni MMFs Fall Hard Again," Prime and Tax Exempt MMF assets continued their steep slide last week. Though at this point it appears everybody is selling or switching, brokerage sweep accounts continue to be the major contributor of the now over $500 billion shift from Prime and Muni into Government MMFs. As we hinted, shifts by Morgan Stanley money funds drove much of last week's flows. According to our Money Fund Intelligence Daily, which tracks daily asset flows, yields, MNAVs and WLA liquidity figures, Morgan Stanley Govt Sec Inst took in a massive $21.5 billion in the week through Thursday, while while MSIM's Prime and Municipal Active Assets, and Liquid Assets funds showed declines of $12.9 billion. While there is no official word that their retail Prime and Muni funds are liquidating, they did lose over half of their assets and are showing single-digit WAMs (often a sign of an imminent liquidation). We review a recent statement by Morgan Stanley brokerage on changes to their sweep program, and also quote from an ignites article on strike and cutoff times below.
Though there is no mention of any liquidations in Active Assets' recent filings, a recent Morgan Stanley "Bank Deposit Program Disclosure Statement" says, "Under the Bank Deposit Program, free credit balances in your Active Assets Account ... will be automatically deposited into deposit accounts established for you by and in the name of Morgan Stanley Smith Barney LLC and Morgan Stanley Bank, NA, and Morgan Stanley Private Bank, NA ... and for free credit balances above $2 million, Morgan Stanley will sweep such balances into a Sweep Fund."
The disclosure continues, "Beginning August 10, 2016, funds will be deposited into your Deposit Accounts at the Sweep Banks up to the Deposit Maximum. Once the deposited funds reach the Deposit Maximum, any additional free credit balances will be swept into the Sweep Fund for eligible accounts. If your account is eligible, the Sweep Fund available for your Account is the Morgan Stanley Institutional Liquidity Funds Government Securities Portfolio (symbol MGPXX). The Deposit Maximum and the Sweep Fund are subject to change with prior notice to you from Morgan Stanley."
It also says, "As required by federal banking regulations, the Sweep Banks reserve the right to require seven days' prior notice before permitting a transfer of funds out of an MMDA. While the Sweep Banks have indicated that they have no present intention of exercising their right to require such notice, the Sweep Banks may exercise this right at any time in their sole discretion. For applicable accounts, beginning August 10, 2016, all withdrawals necessary to satisfy debits from your Account will be made by Morgan Stanley, as your agent, first from your Sweep fund." Moody's also withdrew its "Aaa-mf" money market fund ratings on Morgan Stanley Liquid Assets Fund Inc. and Active Assets Money Trust.
We haven't added the Morgan Stanley totals to our "Prime to Government" conversion spreadsheet yet, which shows funds which have switched, because the MS Active Assets funds continue to hold assets. But without these totals, we show almost $300 billion converted to date. (Two more moves occurring Monday, Aug. 15 -- the $1.6 billion internal Putnam Money Market Liquidity Fund and the $3.9B Wilmington Prime MMF.) Morgan Stanley Inst Gov Sec skyrocketed from just 500 million a week ago to $21.5 billion, while Morgan Stanley Active Assets Tax-Free, Active Assets Money Trust and Liquid Assets all shrunk by more than half (down $3.7 billion to $3.1B, down $2.3B to $2.2B, and down $2.0B to $1.9B). Morgan Stanley Active As CA T-F, Morgan Stanley Act As Prime Tr, and Morgan Stanley T-F Daily Inc Tr also all lost around half of their assets.
In other news, ignites published a story on Fidelity's recent update entitled, "Fido Sets Oct. 1 Float Date, NAV Strike Times for Money Funds (see our Aug. 11 News, "Fidelity Reveals Final Lineup Changes: Prime Inst MMFs, Two Strikes"), and BlackRock filed to change the strike time on its T-Fund from 5:30pm to 5:00pm.
The ignites piece says, "Fidelity plans to move the two prime money market funds that it sells to institutional investors to a floating net asset value on Oct. 1, two weeks before the deadline for doing so under the SEC's 2014 reforms. In a recent communication with investors, Fidelity also laid out the times throughout the day that its $61.6 billion Prime Money Market Portfolio and $444 million Prime Reserves Portfolio will strike their NAVs."
It explains, "Fidelity Prime Money Market Portfolio will strike its NAV at 9:00 a.m. and 3:00 p.m. (ET) and will offer same-day settlement. Prime Reserves Portfolio, launched in June of this year, will strike its NAV at 4:00 p.m. (ET) and also will offer same-day settlement.... A spokesman for Fidelity notes that the strike times were chosen "based on our investors' preferences."
The article continues, "Fidelity's decisions regarding intraday NAV strike times are noteworthy in light of the fact that a number of other large money fund sponsors have opted to set three times during the day -- typically either 8:00 or 9:00 a.m., noon and 3:00 p.m., says Peter Crane, CEO of Crane Data."
It explains, "BlackRock, Federated, JPMorgan, Goldman Sachs and Invesco, for example, have taken this route with certain funds, as previously reported. "It looks like Fidelity said, 'Why bother with the noon cutoff time?'" says Crane. The firm could have done so to save costs or simply because they did not see it as worthwhile, he says."
The piece tells us, "In March, JPMorgan Asset Management was among the first to set a specific date for its funds to transition to a floating NAV: Oct. 1. BlackRock in May chose Oct. 11 as the day it will make the change. Deutsche disclosed in June that its Daily Assets Fund will transition to a fluctuating NAV on Oct. 10. Invesco says in a June communication with investors that it will do so "on or about" Oct. 12. At the end of July, Wells Fargo Funds updated the disclosure regarding its funds' float date, setting it as Oct. 5."
Ignites adds, "With roughly two months to go before the compliance deadline for the most significant parts of the SEC's money fund reforms, providers are wrapping up final changes to their product lines, says Crane. "This is the homestretch.... [A]t this point it's watching what investors do and gearing up for the transition that remains."
Finally, BlackRock Liquidity Funds' T-Fund posted a Prospectus Supplement which says, "Effective on October 11, 2016, the deadline for purchases and redemptions in the Fund will be changed from 5:30 p.m. Eastern time to 5:00 p.m. Eastern time. Consequently, effective October 11, 2016, the sections of the prospectuses entitled "Account Information - Purchase of Shares" and "Account Information - Redemption of Shares" are amended to delete the row of each table relating to the Fund in those sections in its entirety and replace it with the following: Fund: T-Fund, Deadline (Eastern time): 5:00 p.m."
