Crane Data has released the preliminary agenda for its fifth annual Money Fund University conference, which will be held at The Stamford Marriott in Stamford, CT, January 22-23, 2015. Crane's Money Fund University is designed for those new to the money market fund industry or those in need of a concentrated refresher on the basics. But the event also focuses on hot topics like money market reforms and other recent industry trends. The conference features a faculty of the money fund industry's top lawyers, strategists, and portfolio managers. MFU offers attendees an affordable ($500) and comprehensive one and a half day, "basic training" course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, money market instruments such as commercial paper, CDs and repo, plus portfolio construction and credit analysis. At our Stamford event, we will also take a deep dive into the SEC's new money market reforms, with several sessions on the topic.
In 2012, the New York Fed released a report on Tri Party Repo Reform to address potential systemic risk concerns associated with the infrastructure supporting the tri-party repo market. The roadmap to reform's goals were to substantially reduce the amount of intraday liquidity needed to facilitate settlement, and foster improvements in market participants' liquidity and credit risk management practices. In a new post on its Liberty Street Economics blog entitled, "Don't Be Late! The Importance of Timely Settlement of Tri-Party Repo Contracts," the NY Fed gives a status update on reforms and explains "cash investors' role in the settlement process, and highlight how their current practice of sending principal payments late in the day disrupts the timely settlement of tri-party repo contracts." The piece was written by Adam Copeland, research officer in the NY Fed's Research and Statistics Group, and Ira Selig, senior associate in the Financial Institutions Supervisory Group.
On Friday, we featured the major comment letters from money fund managers written in response to the SEC's proposal on the "Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification Requirement in the Money Market Fund Rule." (See Crane Data's Oct. 17 News, "Fund Cos. Have Concerns on SEC's Removal of Credit Ratings Proposal.") Today, we focus on comments from industry organizations like the Investment Company Institute and the Securities Industry and Financial Markets Association. The proposal, which is part of the SEC's money market reform package, would remove references to credit ratings of nationally recognized statistical rating organizations (NRSROs) from Rule 2a-7. Below are some excerpts with links to the full comment letters.
The Investment Company Institute released its latest "Money Market Fund Holdings" report, which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds (as of Sept. 30, 2014). ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 25.4% as of September 30, 2014, down from 26.1% on August 31. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 21.4% (vs. 21.9% last month) and "Other treasury securities," which added 4.0% (down from 4.2% last month). Prime funds' Weekly liquid assets totaled 37.3% (vs. 39.2% last month), which was made up of "All securities maturing within 5 days" (31.5% vs. 32.4% in August), Other treasury securities (4.0% vs. 4.1% in August), and Other agency securities (1.9% vs. 2.7% a month ago). (See our previous Oct. 10 News, "October Money Fund Portfolio Holdings Show Spike in Fed Repo, T-Bills".)
A host of letters were submitted on the SEC's proposal on the "Removal of Certain References to Credit Ratings and Amendment to the Issuer Diversification Requirement in the Money Market Fund Rule" right at the October 14 comment period deadline. Many of these letters have now been posted, and most of the largest managers in the money market space, including Fidelity, Vanguard, BlackRock, Dreyfus, Invesco, and Schwab, expressed some concerns on the proposed changes as part of MMF reforms. Currently, to ensure that these funds are invested in high quality short-term securities, Rule 2a-7 requires that money market funds invest only in securities that have received one of the two highest short-term ratings ("first tier" or "second tier"). The SEC's re-proposed amendments would eliminate the credit ratings requirements for money market funds. Instead, a fund could invest in a security only if the fund's board of directors (or its delegate) determines that it presents minimal credit risks, and that determination would require the board of directors to find that the security's issuer has an exceptionally strong capacity to meet its short-term obligations. (See our Aug. 5 News, "SEC Proposal to Remove Credit Ratings Eliminates First, Second Tier".)
U.K.-based corporate treasurers have been hoarding increasing amounts of cash since the financial crisis, according to a survey, "Corporate Cash and Liquid Investments," released by the London-based Association of Corporate Treasurers. In the U.K., private non-financials companies hold about L500 billion in cash compared to about $2 trillion in the US, and E2 trillion in the Eurozone. In all three regions, cash holdings have a little more than doubled since 2000. In the US, UK, and throughout most of Europe, cash holdings represent about 20% of market capitalization. Why? The report says, "Risk and concerns about access to finance clearly increase during a financial crisis. That UK corporate cash has increased by about 25% since Q1 2008 is, then, little surprise. The crisis has emphasized to companies that banks may not be willing (or able) to lend just when the company needs it -- or at all. And, of course, availability of market based finance (from bonds, for example) can never be assumed, depending as it does on investor demand." (Note: For more on recent corporate cash surveys, see our Sept. 25 News, "GT News Survey Reveals Corporate Treasurers Attitudes on Cash Mgmt" and our July 15 News "AFP Liquidity Survey: Corps Hold More Cash, Concern Over MMF Reform." Note too that the Association for Financial Professionals, or AFP will hold its 2014 Annual Meeting Nov. 2-5 in Washington.)
Money fund regulations continue to dominate the headlines in Europe as regulators and lawmakers prepare to act on a reform proposal introduced last September by the EU Commission. In recent weeks, there's been some momentum against the 3% capital buffer proposal as we wrote about in our Oct. 2 "News" piece, "European Regulators Shift Reform Focus Away from Buffer". Yesterday, Reuters in "EU looks to U.S. for solution to stalemate in reform of money market funds" reported that EU officials are looking to U.S. reforms to help them develop new rules for the $1.3 trillion European money market industry, but they haven't ruled out a buffer just yet.
Since rates on cash investments hit virtually zero six years ago, a growing chorus of advisors and managers have pushed investors to reach for yield and to explore enhanced cash and ultra-short bonds. UBS Advisors is the latest to jump on the bandwagon; the brokerage has started a campaign to push brokers towards enhanced cash and short-term alternatives. The idea, documented in a piece entitled, "Cash & Short-Term Alternatives," is to give financial advisors the opportunity to redeploy the assets sitting in cash as many advisers have maintained, or even grown, cash positions in recent years. According to a recent article in Investment News entitled, "Cash Holdings Finally Getting Some Respect", advisers have been increasing cash positions this year due to market uncertainty, many holding upwards of 20%, or more, in cash.
Crane Data released its October Money Fund Portfolio Holdings Thursday, and our latest collection of taxable money market securities, with data as of September 30, 2014, shows a jump in Repo, Treasury, and VRDNs, and a big drop in Other (Time Deposits) holdings. Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) increased by $42.4 billion in September to $2.454 trillion. Portfolio assets increased by $28.2 billion in August, after decreasing by $6.2 billion in July, $18.0 billion in June, and $3.7 billion in May. Repos again became the largest portfolio composition segment among taxable money funds, surpassing CDs. Moving into third were Treasuries, jumping ahead of CP. These were followed by Agencies, Other (Time Deposits), and VRDNs. Money funds' European-affiliated holdings dropped sharply to 22.1% from 29.6% last month with the shift into Repo. Below, we review our latest Money Fund Portfolio Holdings statistics.
Crane Data published its latest Money Fund Intelligence Family & Global Rankings Wednesday, which ranks the asset totals and market share of managers of money market mutual funds in the U.S. and globally. The October edition, with data as of Sept. 30, shows asset increases for the majority of money fund complexes in the latest month, as well as modest gains over the past three months. September marked the second straight month of sizeable increases in assets, after several months of decreases. Over the last 12 months, assets overall are flat. Below, we review the latest market share changes and figures. (These "Family" rankings are available to our Money Fund Wisdom subscribers.)
Nearly one-third of money market funds in South Africa had some exposure to African Bank Investments, which collapsed in August and which allegedly caused some S.A. money funds to "break the buck". But in a report released Tuesday, Fitch Ratings expects the effect of the African Bank collapse on South African money market funds to be limited. "Fifteen of the 43 money market funds active in South Africa had exposure to the troubled African Bank, which accounted for 1.3% of the industry's total assets of ZAR270bn as of end-August 2014, according to the Financial Services Board. Some MMFs absorbed the cost of the write-down from the bail-in of African Bank through available income, as approved by the FSB. In other cases, the write-down cost exceeded the income that could be applied against it, resulting in a capital loss. Fitch downgraded those MMFs that suffered a capital loss as a result of African Bank exposure. We placed all the funds with African Bank exposure that we rate on Rating Watch Negative," writes Fitch. (See our Aug. 26 Link of the Day, "FT: South African MMFs Break the Buck", and our Sept. 24 Link of the Day, "Fitch on South African MMFs".")
The October issue of Crane Data's Money Fund Intelligence was sent out to subscribers Tuesday morning. The latest edition of our flagship monthly newsletter features the articles: "Rates, Reforms Driving Money Fund Consolidation, Changes," an update of fund liquidations and consolidation; "Euro Symposium Recap: Turn Challenges into Opportunities," a look at the highlights from Crane's European Money Fund Symposium; and, "Record Low Expenses, High Waivers, Fee Recapture," which explores fee waivers, low expenses and the possibility of "recapture" as interest rates rise. We also updated our Money Fund Wisdom database query system with September 30, 2014, performance statistics, and sent out our MFI XLS spreadsheet earlier this morning. (MFI, MFI XLS and our Crane Index products are available to subscribers via our Content center.) Our September 30 Money Fund Portfolio Holdings are scheduled to go out on Thursday, Oct. 9.Archives »