Several large money managers have announced lineup shifts this year in response to new money market fund regulations, and it's likely that more will follow in the coming months. Mutual fund publication, Ignites, explored the new landscape in a webinar it hosted last week, entitled, "How Firms are Revamping Their Fund Lineups." The 45-minute session was moderated by ignites Managing Editor Beagan Wilcox-Volz and featured panelists Rick Holland, Head of Money Management and Fixed Income Funds Product Management at Charles Schwab, and Peter Crane, President of Crane Data.
Money fund assets rebounded last week to end February roughly flat. This follows a sharp decline in January, which broke a 5-month winning streak for MMFs. Assets have declined in six out of 8 weeks YTD in 2015, and they should remain weak until we move past the April 15 tax filing date. Over the past 4 weeks, money fund assets have declined by $11 billion according to ICI's weekly, though Crane Data's MFI Daily shows MMF assets up $5 billion in February through 2/26. We review the Investment Company Institute's latest weekly money fund statistics, as well as their latest monthly "Trends" report and Portfolio Composition figures for January, below. We also report again on the news out of Europe (see Friday's "Link of the Day"), where controversy continues to rage over pending money fund reforms.
The February issue of Crane Data's new publication, Bond Fund Intelligence, which tracks the bond fund marketplace with a focus on the ultra-short and most conservative segments, interviews Leonard Aplet, Senior Portfolio Manager at `Columbia Management and a portfolio manager on Columbia's institutional CMG Ultra Short-Term Bond Fund, one of the largest and oldest conservative ultra-short bond funds. Aplet is responsible for Columbia's short duration strategies, a major segment of the manager's $20.7 billion in bond fund assets. We reprint the article below. (Watch for our profile of J.P. Morgan's Dave Martucci in the upcoming March issue of BFI. Contact us to subscribe or for a sample issue.)
State Street Global Advisors hosted a webinar recently called, "The New World of Cash - Rate Hike Scenarios, which was moderated by SSgA's Head of the US Cash Business Yeng Butler, and featured Portfolio Strategist Will Goldthwait and Head of Global Cash Management Matt Steinaway. On interest rate hikes, Goldthwait said, "I'm taking a more hawkish view on Fed policy in the coming year. I believe that the Fed is going to raise interest rates or raise their target range, as Yeng described, at their June meeting. One thing that I'll be on the lookout for is when they drop the "patient" phrase in their FOMC minutes. I would expect at the March meeting we're going to see that "patient" word dropped, and that will lead to the June meeting for a Fed rate hike."
The Securities and Exchange Commission has begun publishing a monthly "Money Market Fund Statistics" report, which summarizes Form N-MFP data and which includes totals on assets, yields, liquidity, WAM, WAL, holdings, and other money market fund trends. The data is produced by the SEC's Division of Investment Management. This inaugural release includes data as of Dec. 31, 2014, but the Jan. 31, 2015 data should be available shortly. Overall, total money market fund assets stood at $3.081 trillion at the end of the year, up $27 billion from Dec. 31, 2013, according to the SEC's broad total (which includes many private and internal funds not reported to ICI, Crane Data or other reporting agencies). We review the SEC's summary below, and also excerpt from Chair Mary Jo White's recent comments on money funds and from Fed Chair Yellen's testimony Tuesday.
Federated Investors, which last week announced reform strategies and changes to its money fund lineup (see our Feb. 20 News), also detailed risks and plans in its latest "10-K" Report with the SEC Friday. The filing revealed a 6% drop in money market fund assets to $258.8 billion at year's end. Overall, as of December 31, 2014, Federated managed $362.9 billion in assets, down 4% for the year. Money market funds were by far the largest segment of their asset base, or 71.3% of total assets. Of the total money market fund assets, $225.5 billion were in MMFs (down 6% for the year), and $33.3 billion were in separate accounts (down 7%). Federated managed money market assets in the following asset classes: government ($126.0 billion); prime ($105.1 billion); tax-free ($18.4 billion); and non-U.S. domiciled ($9.3 billion). Federated's investment products and strategies are primarily distributed in four markets: wealth management and trust (44%), broker/dealer (34%), institutional (19%) and international (3%). In the report, Federated also discussed the impact of fee waivers on revenues, and how it plans to adapt to MMF reforms with new 60-day MMFs.
Late Friday, J.P. Morgan Asset Management, the largest manager of money market funds globally, published a press release entitled, "JPMorgan Money Market Funds Announce Intended Money Market Fund Designations In Response To SEC Reforms." It says, "J.P. Morgan Asset Management today announced that the Board of Trustees of the JPMorgan Money Market Funds approved the firm's preliminary recommendation regarding the intended designation of its publicly offered money market funds as "Institutional," "Retail" or "Government," in accordance with the criteria established by the Securities and Exchange Commission ("SEC") in July 2014. These determinations were reflected in a supplement to the money market funds' registration statements filed today. In the supplement, the Board also stated that it has no current intention of instituting liquidity fees or gates on the money market funds ("MMFs") designated as Government MMFs."
Federated Investors, the 4th largest money fund manager with $210.6 billion, became the second major player to officially announce plans to restructure its money market fund lineup following Fidelity Investments, which announced its plans earlier this month. In a press release issued yesterday, Federated announced phase one of its changes, which includes converting some of its Institutional Prime funds to 60-day maximum maturity funds, which are allowed to continue using amortized cost pricing, decreasing the likelihood that any "floating NAV" fund would actually float. (Recent news of big shifts into government funds may also guarantee enough spread to make these products viable.) Among other changes, it also plans to merge some of its money funds. Federated CEO Christopher Donahue has talked about plans to restructure the firm's money funds for several months since the Securities and Exchange Commission approved MMF reforms last July. Today's "News" outlines the changes.
Will BlackRock be the next mega money manager to realign its money market fund lineup in response to the Securities and Exchange Commission's money market reforms? An article in Wednesday's Wall Street Journal says that indeed may be the case. The Journal piece, "Advisers Prepare for Changes to Money-Market Funds (finally) recaps the news that we've covered for a couple of weeks now, that Fidelity is converting three of its Prime Retail funds, including the $112 billion Fidelity Cash Reserves Fund, to a government fund due to investor demand. (See our Feb. 2 News, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt.") But it also examines what others have been wondering for the last two weeks: Will other managers do something similar? Federated has stated for months, before the Fidelity news came out, that it is considering money market fund changes in response to the SEC reforms. However, the Journal also reports that BlackRock, also a top 5 money manager in terms of assets, might be shaking things up, too.
The preliminary agenda is available and registrations are now being taken for Crane Data's 7th annual Money Fund Symposium, which will take place June 24-26, 2015 at The Hilton Minneapolis, in Minneapolis, Minn.. Money Fund Symposium is the largest gathering of money market fund managers and cash investors in the world. Last summer's event in Boston attracted nearly 500 attendees, and we expect yet another robust turnout for our Minneapolis event this June. (Symposium participants include money fund managers, marketers and servicers, cash investors, money market securities dealers, issuers, and regulators.) Visit the MF Symposium website (www.moneyfundsymposium.com) for more details. Registration is $750, and discounted hotel reservations are also now available. We review the agenda and conference details below. (E-mail us at email@example.com to request the full brochure.)
In his latest "Money Market Monitor" report, Garret Sloan, money market strategist at Wells Fargo Securities, analyzes the latest plot twist in the ongoing money market reform saga, i.e., Fidelity's announcement that it will be converting some $130 billion in prime funds to government funds, including the $112 billion Fidelity Cash Reserves. He believes there are three major factors that led to Fidelity's shift from prime retail. Sloan writes, "Those of you that are familiar with the George R.R. Martin series of books made popular to non-geeks by the HBO series Game of Thrones know of the progressively dark twists and turns that the author forces his characters to endure as the plots progress. The money market fund universe seems to have undergone its own "Red Wedding" moment last July, but until recently it appeared that while the industry was begrudging the change, it was nevertheless taking it in stride. That view may have completely changed this month as the market is digesting the recent news from Fidelity Investments that it has chosen to convert its largest prime money market fund, Fidelity Cash Reserves, along with two other smaller funds, to the government retail category."
There's been a lot of discussion about the future of prime funds since the SEC approved money market reforms last July, and rightfully so. But prime funds shouldn't be the only concern of MMF investors. Government funds, which came away from reforms largely unscathed, face their own set of challenges in a post-reform world, especially with a potential flood of new assets. Columbia Management's John McColley, portfolio manager, Liquidity Strategies, and Alice Flynn, senior product manager, discuss these issues in a new commentary, "Challenges Facing Government Money Market Funds." One of the biggest challenges will be lower yields, they say, so, "Investors seeking a higher yielding product may look to combining a government money market fund with one or more floating NAV retail funds." (Note: We also interview Columbia Management Ultra Short Manager Leonard Aplet, who has some comments on money fund reforms and alternatives, in the pending February issue of our new Bond Fund Intelligence.)Archives »