PIMCO, which recently announced the liquidation of its Treasury Money Market Fund (see yesterday's News), also has filed to merge PIMCO Money Market Fund into PIMCO Government Money Market Fund. A Prospectus Supplement states, "The Board has approved the reorganization of the PIMCO Money Market Fund (the 'Acquired Fund') into the PIMCO Government Money Market Fund (the 'Surviving Fund,' and together with the Acquired Fund, the 'Funds') (the 'Reorganization')." We discuss this most recent Prime exit below, and `we also review a new client survey from BlackRock and updates from Citi and Fitch Ratings.
PIMCO's filing proceeds to state that assets of the Money Market Fund will be shifted into the Government MMF. These transferred shares will then be distributed to the Acquired Fund's shareholders in a "complete liquidation.... The Board considered multiple factors, including, but not limited to, the Funds' substantially similar investment objectives, principal investment strategies, principal risks, policies, restrictions and distribution schedules and the fact that the Funds are managed by the same portfolio manager."
It continues, "In addition, while the fees and expenses for the Funds are mostly identical, the Surviving Fund currently has lower supervisory and administrative fees as compared with corresponding share classes of the Acquired Fund, resulting in a lower total expense ratio for the Surviving Fund as compared with the Acquired Fund.... The Reorganization is expected to occur on September 23, 2016, or on such other date as determined by appropriate officers of the Trust."
In other news, BlackRock recently sent clients a brief survey on overall client service in an e-mail entitled, "Comments for a Cause." Tom Callahan, Global Head of BlackRock Cash Management, writes, "We believe there has never been a more important time for us to be focused on providing the best possible service we can to you. With this in mind, we have created this brief survey to help us understand where you think we're doing well and where we can improve."
Callahan explains to Crane Data, "At BlackRock, we focus on 4 key things when it comes to Cash Management: risk management, performance, thought leadership and client service. During this time of incredible change in our industry, it is essential that we continue to deliver excellence to our clients across all four of these critical dimensions."
He adds, "As it relates to Client Service, we are constantly looking for ways to enhance service levels for our clients and change only creates more opportunities to improve. We wanted to take this opportunity to hear directly from our clients on areas where we might be able to add more value to their cash investing needs. And we are doing it for a good cause -- we plan to donate $5k to the charity of a randomly selected client's choosing."
The survey asks questions such as, "How would you rate the quality of client service that you receive from BlackRock Cash Management?" "How easy do you find doing business with BlackRock Cash Management?" and "How would you rate the quality and frequency of information you receive from BlackRock around portfolio strategy and markets?" It also included a series of questions requesting feedback towards service improvement and additional assistance. Clients of BlackRock Cash Management have until September 14, 2016 to complete the survey.
Citi's Steve Kang, in a recent "Short-End Notes," featured a brief entitled, "FAQs on money market reform and LIBOR." He states, "We compiled frequently asked questions on the upcoming money market reform and LIBOR to summarize our thoughts on the matter." The FAQs that Kang refers to are as follows: "What is money market reform?" "Why did LIBOR move higher on this?" "What would happen to LIBOR after the reform?" "Would the Fed be worried about higher LIBOR rates?" "Does the Fed have a toolkit to deal with even higher LIBOR?" and "Are there any investment opportunities as a result of this?"
Kang continues, "This October 14th will mark the beginning of a new chapter for the $2.7 trillion U.S. money market industry as the long awaited (and feared) reform will go into effect. Since the reform was announced, the composition of MMF changed dramatically and brought heterogeneous impacts on short-end markets, with the most publicized being the uptick in LIBOR.... During the crisis in September 2008, one prime MMF 'broke the buck' and it led to widespread panic among investors who thought of it as stable/liquid assets. Large outflows ensued and eventually the Treasury and the Fed stepped in to stabilize."
Lastly, in response to the question, "What would happen to LIBOR after the reform?" Kang explains, "High levels of LIBOR and wide basis in 3s1s and 6s3s are largely due to term premiums on uncertainty of the scale of outflows from prime funds. With large-scale retail conversions behind us, most outflows are likely to occur from the institutional space. The MMF community has long been preparing for large-scale outflows."
He adds, "As of end of July, institutional investors have 60% of AUM in weekly assets, 30% above the regulatory minimum of 30%, and set to increase even more. Retail counterparts have 40% AUM. This means that the prime community can meet $300bn of outflows without selling much of their CD/CP portfolio. WAM of prime institutional is only around 14-days as of August, much lower than the regulatory maximum of 60-days."
Finally, a release entitled, "Fitch: Commercial Paper Rates Rise Ahead of Money Fund Reform," tells us, "With less than two months remaining ahead of money market fund (MMF) reforms coming in October, the commercial paper (CP) market has experienced falling demand and rising borrowing costs, according to a new 'U.S. Commercial Paper Monitor' from Fitch Ratings."
Senior Director Greg Fayvilvech, comments, "Prime money fund managers have been maintaining extremely short maturity profiles as they are reluctant to invest in securities maturing beyond Oct. 14 when money fund reforms comes into effect, which has reduced prime MMF demand for three-month and longer CP.... Money fund holdings of asset-backed CP, Financial CP and Nonfinancial CP markets have decreased in recent months and the falling demand for CP and rising borrowing cost could be a challenge for some CP issuers."
The Fitch piece adds, "As of June 30, 2016, prime funds had $89.8 billion, or 30.2% of total CP, invested in CP with tenors of 3-Months or longer compared with $53.6 billion, or 19.6%, as of July 31, 2016. Falling demand for long dated paper has pushed borrowing costs higher with Tier 1 90-day CP rates increasing from 0.66% to 0.74% over the same period. Following the December 2015 Fed rate hike, the Tier 1 90-day CP rate has increased more than 30%."
