Bloomberg writes, "Bank Strains Emerge as Brexit Collides With Money-Fund Overhaul." It says, "For U.S. banks, Brexit couldn't have come at a worse time, raising funding costs just as changes to the $2.7 trillion money-fund industry threaten to sap demand for the lenders' short-term debt.... Ripple effects from the British vote to leave the European Union are compounding strains that have been building for months as a result of efforts to make the financial system safer. Wall Street strategists predict investors will pull as much as $400 billion from U.S. prime money funds before an overhaul of the industry is completed in October. Those investors are key buyers of banks' commercial paper. With prime money funds facing possible outflows, "they aren't chomping at the bit" for commercial paper, said Priya Misra, head of global interest-rates strategy at TD Securities in New York." The piece adds, "The exodus from prime funds started last year as some investment companies converted prime funds into those that only buy government debt -- exempting them from rules beginning in mid-October that require daily net asset values to fluctuate. Now investors are leaving prime funds, to avoid floating NAVs as well as restrictions such as redemption fees. The funds’ assets have declined about 20 percent this year, or $252 billion, while government-related funds gained $245 billion, or about 21 percent, according to Crane Data LLC figures through June. Banks' reliance on commercial paper leaves them in the crosshairs during the money-fund overhaul. The potential for weaker demand from prime funds is contributing to lift financing costs. Three-month commercial paper rates have risen to about 0.63 percent, from 0.24 percent a year ago. "June is the first month that we've seen noticeable outflow from prime money funds that weren't conversions-related," said Peter Crane, president of Westborough, Massachusetts-based Crane Data. "No doubt we will see more."" In other news, Reuters posted "Floating NAVs: SEC money market fund compliance risk looms on the horizon." It reads, "With the deadline for new valuation rules on certain money market funds only months away, compliance and risk professionals at fund management firms need to confirm they have taken the necessary steps to ensure that their systems are ready, as well as having communicated how such changes will impact their clients.... Of all the changes put forward, perhaps the most difficult will be the transition to floating NAV for client sales and redemptions. "The main crux of the new reforms ... from a prime and municipal perspective in the institutional funds is that those funds have to float their NAVs," Tracy Hopkins, executive vice president at BNY Mellon Fixed Income, told a recent Thomson Reuters webinar on the SEC's impending rules. Part of the challenge for funds in calculating and posting up-to-date NAVs for their funds is the timing and frequency of intraday updates, or so-called "snaps." According to Hopkins, an industry consensus seems to be forming around three updates: 9 a.m., 12 noon, and 3 p.m., but some funds are considering an 8 a.m., 12 noon and 2 p.m. schedule."
Two of the most popular sessions at our 2016 Money Fund Symposium in Philadelphia last week were "Major Money Fund Issues 2016" and "Senior Portfolio Manager Perspectives," which featured some of the leading authorities from some of the largest players in the money fund industry. During the first session, panelists were asked about the questions they're getting most frequently of late. Fitch Ratings' Ian Rasmussen replied, "The questions usually fall within 3 main categories: They want to know about liquidity, they want to know about asset flows, and they want to know about yield." Indeed, these three topics dominated not just the conversations in these sessions, but the entire conference. (Note: Next year's Money Fund Symposium is scheduled for June 21-23 in Atlanta. Mark your calendars and watch for details late this fall. Also, see our "Money Fund Symposium 2016 Download Center" page for recordings and Powerpoints from the show.)
In the "Major Issues" session, Crane Data's Peter Crane asked, "How much is going to flow out of Prime?" Federated Investors' Deborah Cunningham said that, to date, there hasn't been a lot of movement by investors -- but she expects that to pick up over the next few months. She explained, "As we flipped the calendar into June we started to see some customers start to take action -- not many, but a few. We saw a few customers choose to leave prime and go into Govies. Government funds are actually picking up a lot of assets that are not necessarily coming from our prime funds, or others' Prime funds. I think they are coming from other market vehicles that are no longer as attractive or no longer open to them in the form they were before.... I would expect that in July we'll see a little pick up, then a lull in August, and then September [is] where everybody is making sure they're positioned properly."
Cunningham added, "Customers want to see what other customers are doing, and there is some herd mentality, if you will, to this industry. I think that will, to some degree, at least initially, solidify in people's mind where they want to be on October 14. It doesn't necessarily solidify where they want to be on October 17. `But on October 14 when the change occurs, they often want to be with others that are similar to themselves."
Panelist John Donohue of JP Morgan Asset Management concurs with the estimates floated by others that between $400 and $500 billion will move out of Prime by reform implementation. He stated, "But as long as we get through day one, the real thing is what happens on days 2, 3, and beyond. The opportunity for us is to work with them [clients] to segment their cash ... do an asset allocation around that liquidity, and hopefully they can decide what levers they want to pull to put the cash across a full spectrum of liquidity type solutions -- everything from a Govie fund to a Short Duration bond fund."
Regarding flows into Government funds, Cunningham said, "There are 4 main categories of Government funds -- Treasury only, Treasury with Repo, Government only, and Government with Repo. The Government with repo product is the one that's gaining the most." She also said it helps to have some yield now in Government funds, after having been near zero or 1 basis point for so long. "No more zero. That happened pretty much immediately with Fed lift off."
As for the trend of sweep funds going Government, she said it's an easy choice right now because Government funds have no fees and gates and they are actually earning a little yield. "But if we start to see spreads between Prime and Govie -- now about 20 basis points -- go to 30, 40, 50 basis points, there will be some solutions to figure out how to deal with the gates and fees side of that equation for even the sweep options."
On the yield differential between Prime and Government funds, Donohue explained, "The conundrum right now is, we keep talking about that yield differential between Prime and Govie being more attractive than ever at between 20-40 basis points. But over the next couple of months, that yield is going to compress. If you look at maturity profiles right now, all of the large players have anywhere from 95-100% of their fund maturing at the end of September in anticipation of large outflows. And given that the Fed is in the market giving a natural floor on Govie funds, that spread is going to collapse right on top of each other."
He added, "Some clients are going to look at that yield differential and say, 'Let me take a wait and see approach and just go into Govie <b:>`_.' So, we're going to spend a lot of time working with clients, telling them, 'If you're comfortable in Prime, stay in it, because that yield differential is going to snap back very quickly.' But that's the risk to the overall industry and the challenge we're all going to be facing."
That led to a discussion of liquidity. Said Cunningham, "For our institutional Prime funds, weekly liquid assets at this point are about 50%, and our WAMs are 35 days or less depending on the products." Rasmussen said that is on par with the trends across the industry. (Note: Our MFI Daily currently shows Prime Inst MMFs with 49.4% in WLA, or weekly liquid assets.) Added Rasmussen, "What we're concerned about are the outliers. There are certain funds that aren't building the same type of liquidity that we have seen across the industry.... Investors want to see a higher cushion." Donohue added, "Everyone is going to err on the side of having more than enough liquidity to meet even their worst case redemption analysis."
Donohue discussed the two major elements of the October reforms: fees & gates, and the floating NAV. "The gates and fees are something clients are very concerned about. It's important for everyone to educate our clients, our collective client base, on what that actually means. I believe there's a very little probability of that, but when and if it does happen, maybe it's not the worst thing that could happen. If there were gates and fees back in 2008, maybe Reserve would have survived it, and we wouldn't all be here right now."
On FNAVs, he added, "Once clients get comfortable with the FNAV concept, I personally believe they are going to look at the Ultra-Short bond fund space." Donohue continued, "If you accept the floating NAV, you go a step out of money market funds, and maybe the NAV is a little more volatile, but still very low, and you get a very attractive return, historically, versus what you have gotten. And prime funds are going to hold a ton of liquidity, so that will cause yields to not be as high as they otherwise may be. This is why I think the Ultra-Short space is the opportunity coming out of reform."
Many of the same themes were explored in the "Senior Portfolio Manager" session, moderated by Barclays' Stewart Cutler and featuring Kevin Gaffney of Fidelity Investments; Laurie Brignac of Invesco; and Peter Yi of Northern Trust Asset Management. Cutler began the conversation with the overarching trend in the industry the past two years. "Since the beginning of 2015, Prime portfolios, which had been a little over $1.4 trillion, have slid down towards about $1.1 trillion and Government funds have increased from approximately $1 trillion to $1.4 trillion."
As the reform deadline approaches, panelists discussed how they are positioning their portfolios for the likelihood of Prime outflows. All three said they were being cautious and conservative with their Prime funds, bringing in their durations, shortening WAMs, shortening WALs, and running higher weekly liquid assets. Brignac said the WLA of her funds is in the mid-40% range, which is on par with the industry average for institutional prime funds." Later in the session, Brignac said she expects those weekly liquid asset averages to go even higher. "I would think it would be closer to 60% to 70% in September."
An audience member asked, "If WLA is at 70% in September, what does that mean for the yield differential?" Answered Yi, "That's the predicament we're in. We're going to be part of this unilateral liquidity in these next few months, and it's going to destroy where yields potentially could be. We, like many in this room, believe there will be a meaningful spread between credit strategy and Government strategy. But the next 3 months, it's going to be hard to see."
Fidelity's Gaffney was asked about communicating with clients. "They know the deadline is in October, and they know they have until then to make a decision. One of the reasons why it's difficult to pin down the number of how much is going to be moving out of institutional Prime is a lot of these institutional investors have not made that decision yet. They are still thinking about their alternatives: What other options are out there? What the funds are going to look like in October? [And, what will be] the spreads between Prime and Government funds? So there are a lot of variables to think about."
On the floating NAV, Yi said, "I don't think a variable NAV is going to move very often -- when it does, it's going to be pretty small. Interest rate movements, movements from the Fed, getting caught off-sides from the Fed. You'll see some movement in the NAV, but we don't think it's going to be meaningful. Now, if there's a credit event -- an impaired asset, a distressed asset, that’s where you're going to see movements that are meaningful -- even in a constant NAV. We need to step a step back sometimes and say, 'What are the big factors that are going to move an NAV?' ... It always ends up being a credit event."
On new product launches, Brignac said one of the outcomes of reforms is that it has "changed the cash discussion that we're having with clients. We're talking about bucketing different types of cash, what is the right vehicle -- and it's going to be different for different clients. The panel yesterday was talking about ultra-short bond funds, and this is a strategy that's gaining a lot of traction and a lot of attention. Initially, a lot of clients will hit that 'easy' button and probably just move into Government funds. But I think we'll see a lot more pickup in some of these other products going into next year."
Finally, Yi added, "Ultra-Short is the real opportunity here. We have the full product suite within the money market fund space. But outside of that, we think there will be a lot of new flavors, depending on where there is investor need. We have an ultra-short fixed income business that's really been growing exponentially in this low interest rate environment... It's a great opportunity to talk about cash segmentation strategies, and we think that's resonated very well."
As we make final preparations for next month's Crane's Money Fund Symposium in Philadelphia (June 22-24), we are also preparing for our 4th Annual European Money Fund Symposium, the largest money market event in Europe. The preliminary agenda is set for this year's show, scheduled for Sept. 20-21 in London, England. Read on for details. But first, if you haven't already registered for Money Fund Symposium, you can still do so via www.moneyfundsymposium.com. (We look forward to seeing many of you in Philadelphia next month and in London this fall!)
While the Agenda is still being tweaked for Crane's European Money Fund Symposium, registrations are now being accepted. Last year's event in Dublin attracted 120 attendees, sponsors and speakers, our largest ever, and we expect our return to London to be even bigger and better.
"European Money Fund Symposium offers European, Asian and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue," says Crane Data President Peter Crane. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals," he added.
EMFS will be held at the Hilton London Tower Bridge hotel. Book your hotel room before Monday August 1 and receive the discounted room rate of L289. Registration for our 2016 Crane's European Money Fund Symposium is $1,000. Visit www.euromfs.com to register or contact us to request the PDF brochure, for Sponsorship pricing and info, and for more details.
The EMFS agenda features sessions led by many of the leading authorities on money funds in Europe and worldwide. The Day One Agenda for Crane's European Money Fund Symposium includes: "Welcome to European Money Fund Symposium" with Peter Crane of Crane Data; followed by "IMMFA Update: The State of MMFs in Europe" with Reyer Kooy and Jane Lowe of IMMFA; "Beyond MMFs: Enhanced Cash Strategies" with Jason Granet of Goldman Sachs AM and Peter Yi of Northern Trust; "Senior Portfolio Manager Perspectives," with Joe McConnell of JP Morgan AM, Jonathan Curry, of HSBC Global AM, and Deborah Cunningham of Federated Investors; and "French Money Funds, VNAV & Negative Rates," with Charlotte Quiniou of Fitch Ratings and Vanessa Robert of Moody's Investors Service.
Day One also includes: "MMFs in Asia: China, Japan, and Beyond" with Andrew Paranthoiene of Standard & Poor's and Fitch Rating's Charlotte Quiniou; "US Money Funds: Adapting to Reforms" with Charlie Cordona of BNY Mellon Cash Investment Strategies and Peter Crane; and "UK Sterling MMF Issues" with Dennis Gepp of Federated UK and Jennifer Gillespie of Legal & General IM.”
The Day Two Agenda includes: "The Changing Face of European MMFs" with Rudolf Siebel of BVI (and an additional presenter to be named later); "New Regulations: Devil in the Details" with Jane Heinrichs of ICI and Dan Morrissey of William Fry; "Strategists Speak: Negative Rates and Reforms" with Giuseppe Maraffino of Barclays and Vikram Rai of Citi.
The afternoon of Day Two features: "Repo & ABCP in Europe: MM Securities" with Kieran Davis of Barclays and David Hynes of Northcross Capital LLP; "Dueling Domiciles: Ireland vs Luxembourg; "Risks and Ratings: Areas of Concern and Changes" with Marc Pinto of Moody's and Greg Fayvilevich of Fitch Ratings; "Client Concerns & MMF Investor Issues" with James Finch of UBS Global AM, Jim Fuell of JP Morgan AM, and Kevin Thompson of SSGA <i:http://www.ssga.com>`_; and "Offshore Money Fund Data, Holdings, and Portals with Peter Crane and Ryan Kipp of Cachematrix.
In other news, Robert Pozen, former Fidelity and MFS executive and current Senior Fellow at the Brookings Institution and Senior Lecturer at MIT Sloan School of Management, penned an article for Real Clear Markets called, "Money Market Funds in China Become Less Systemically Risky. He writes, "Last year, China's stock market took a tumble, which sent shock waves through the global securities markets. Now, money market funds are booming in China and could present the next systemic risk. While Chinese regulators have taken steps to reduce that risk, the question is whether they have gone far enough."
He continues, "Assets of Chinese money market funds have doubled in the last year -- from approximately $350 billion at the end of 2014 to over $700 billion at the end of 2015. These funds are primarily sold online to individual investors by Internet giants like Alibaba and Baidu. Money market funds have become so popular in China because they offer higher interest rates than retail bank deposits. But these funds achieve higher rates by investing in a much riskier array of debt securities than U.S. money market funds -- and the average Chinese investor may not be aware of the level of risk involved. If there were significant defaults in the debt securities held by Chinese money market funds, investors would likely run for the exits, just as they did last summer in the Chinese stock market."
Pozen explains, "To prevent these potential problems, the Chinese Securities Regulatory Commission has adopted rules, which became effective in February of this year. These rules are designed to decrease the riskiness and increase the liquidity of Chinese money market funds, although the rules are still looser than the regulations for U.S. money market funds. Since Chinese money market funds are not backed by the government, they can approach bank-like levels of risk only by holding high-quality debt securities with very short maturities. Such maturities reduce the fund's exposure to defaults and other adverse events that can happen between the purchase date and the payment date."
He adds, "The new regulations move in this direction by shortening the holding period until payment of a Chinese money market fund (the weighted average maturity of its debt securities) from 180 to 120 days. But this time limit is still twice as high as the time limit in the U.S., where the weighted average maturity is 60 days for a money market fund. U.S. money market funds are also not allowed to use any leverage -- borrowing monies and investing these monies in additional securities.... Again, the Chinese regulations move in the right direction, though not as far as the safer U.S. standard. They reduce the maximum leverage of a Chinese money market fund from 40 to 20 percent of its assets."
Pozen writes, "To cope with turbulent markets, the new regulations give Chinese money market funds, like their American counterparts, more tools to meet heavy redemptions. When the liquidity of a Chinese money market fund is thin, it must impose a 1 percent redemption fee on anyone redeeming more than 1 percent of the fund. And if someone tries to redeem more than 10 percent of any Chinese money market fund, it may delay the transaction or postpone payment of the proceeds. More broadly, the regulations mandate an array of disclosures designed to educate investors about the risks of Chinese money market funds."
He concludes, "Yet, the new regulations make one potentially significant change in the credit rating of fund investments, which may not be readily apparent to retail investors. Specifically, the regulations lower the minimum rating for fund investments in non-financial bonds from AAA to AA+. These are ratings from Chinese rating agencies, which some experts already view as using less rigorous standards than international rating agencies.... `In short, the recent regulations have generally reduced the risks associated with Chinese money market funds, although they do not yet meet international best practice standards. Over the next few years, we will see whether the new restrictions will be adequately enforced by the Chinese securities regulators, and even if so, if they are enough to make this booming investment safe for individual Chinese investors."
The May issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Friday morning, features the articles: "Crane Data Celebrates 10th Birthday; Happy to Be Here," which looks at where Crane Data has been, where we are, and where we are going; "Goldman's Fishman Talks MMF Reforms, Growth," which profiles Dave Fishman, Head of Liquidity Solutions at Goldman Sachs Asset Management; and "ICI Fact Book Shows Money Funds Hung Tough in 2015," which reviews trends from the just-released "2016 Investment Company Fact Book." We have updated our Money Fund Wisdom database query system with April 30, 2016, performance statistics, and also sent out our MFI XLS spreadsheet Friday morning. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our May Money Fund Portfolio Holdings are scheduled to ship Tuesday, May 10, and our May Bond Fund Intelligence is scheduled to go out Friday, May 13. Below, we also review a release entitled, "First American Funds Announce Strike Times For Prime Fund, Share Class Name Changes."
MFI's lead "10th Birthday" article says, "Crane Data hits a milestone this month, celebrating our 10th birthday. Given the wild and crazy events of the past decade in the money markets, we consider ourselves lucky to have made it this far. As we've done in past May issues, we'd like to take a moment to review our progress and update you on our efforts, which include expanding the types of data we track and extending our coverage beyond money market funds. Our company, run by money fund expert Peter Crane and technology guru Shaun Cutts, was launched in May 2006 to bring faster, cheaper and cleaner information to the money fund space. We began by publishing our flagship Money Fund Intelligence newsletter, and we've grown to offer a full range of daily and monthly spreadsheets, news, database query systems and reports on U.S. and "offshore" money funds."
It continues, "Just as money market fund complexes have been busy the past year preparing for the 2016 MMF reform deadlines, so have we at Crane Data. In reaction to the new rules on website disclosure that went into effect April 14, we’ve begun publishing Daily Liquid Assets, Weekly Liquid Assets, and Daily MNAVs -- all of which money fund firms are now required to post on their websites to comply with the new regulations. Given the stresses of the zero yield environment and massive regulatory changes, we have evolved and expanded our coverage beyond money funds. In early 2015, we officially launched our Bond Fund Intelligence monthly newsletter, which tracks the bond fund universe with a focus on the ultra-short and short-term bond fund sector."
Our profile of GSAM's Dave Fishman reads, "This month, MFI profiles Dave Fishman, Head of Liquidity Solutions at Goldman Sachs Asset Management. Fishman discusses GSAM's reform plans, its fund lineup, and the industry shift from Prime to Government. Says Fishman on their recent growth, "For the past several years, we've been investing in our business, and we've been staying in front of clients, working to educate them on the coming regulatory reforms and their investment options. I think clients have responded, and our growth is simply the result of staying in front of people and investing in a business we believe in."
Responding to the question, What is your biggest priority? Fishman answers, "Our biggest priority is meeting or exceeding our clients' needs. Obviously, money fund reform has made that a bigger job compared to the past. Reform is creating significant change in a product that was basically unchanged for 40 years and has offered many features and functions that people came to rely on. So our priority is to make sure we offer the right mix of products to meet clients' needs. With this in mind, we have made some significant changes to our product line-up over the last two years, which we think set us up well for October of this year when we'll implement the final changes."
The article on the "Fact Book" explains, "ICI's just-released "2016 Investment Company Fact Book" reports that while equity and bond funds experienced outflows in 2015, money market funds had modest inflows last year. The annual guide looks at institutional and retail money fund demand and the effects of the SEC's money market fund reforms. Overall, money funds assets were $2.755 trillion at year-end, comprising 18% of the $15.7 trillion in mutual fund assets."
On "Demand for Money Market Funds," ICI says, "In 2015, money market funds received a modest $21 billion in net inflows. Money market funds experienced outflows in the first four months of 2015, with investors redeeming $162 billion, on net. Tax payments by corporations in mid-March and individuals in mid-April were likely key drivers behind these redemptions. Outflows abated and money market funds received net inflows of $183 billion over the last 8 months of the year."
In a sidebar, we discuss, "More Changes Afoot." This brief says, "The latest month-end saw 23 funds, totaling $28.4 billion, converted from Prime to Government. With these changes, $242.1 billion has now already shifted from Prime to Govt, 83.6% of the $289.7 billion slated to convert by October 14. Deutsche was by far the largest chunk of it, converting 8 funds totaling $18.8 billion on May 2."
Also, we do a sidebar on "Fee Waivers Keep Dropping," which says, "Federated, Schwab, BNY Mellon, T. Rowe Price, and Northern Trust all released their Q1 earnings this month and a common thread throughout was reduced MMF fee waivers.... BNY Mellon said in its earnings release that "roughly half of money market fee waivers have been recovered following the Fed's December rate increase." Finally, as we do every month, we review all the important "Money Fund News."
Our May MFI XLS, with April 30, 2016, data, shows total assets decreased $42.0 billion in April to $2.636 trillion, after decreasing $20.3 billion in March, increasing $37.4 billion in February, and decreasing $22.4 billion in January. Our broad Crane Money Fund Average 7-Day Yield dropped by 1 bps to 0.11% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) decreased 1 basis point to 0.21% (7-day). It is the first time since the beginning of the year that these indexes have declined.
On a Gross Yield Basis (before expenses were taken out), the Crane MFA was up 3 bps to 0.43% and the Crane 100 was down 1 bps to 0.46%. Charged Expenses averaged 0.31% (up 2 bps) and 0.29% (up 4 bps) for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 35 days (down 1 day from last month) and for the Crane 100 was 35 days (down 2 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
In other news, First American Funds' release says, "The First American family of mutual funds today announced that it intends to offer intraday liquidity for shareholders in its planned institutional prime obligations fund. As previously announced, the current First American Prime Obligations Fund will be renamed First American Institutional Prime Obligations Fund (Institutional Prime). First American plans to offer three intraday pricings for Institutional Prime at 9:00 a.m., 12:00 p.m. and 3:00 p.m. (Eastern Time) beginning October 14, 2016. Institutional Prime will be subject to a floating net asset value and the possibility of liquidity fees and redemption gates beginning October 14, 2016."
It adds, "Also as previously announced, on July 18, 2016 First American plans to launch a new fund for retail investors only, First American Retail Prime Obligations Fund (Retail Prime). Retail Prime will seek to maintain a stable $1.00 per share NAV and will price once daily at 4:30 p.m. (Eastern Time). Beginning October 14, 2016, Retail Prime will be subject to the possibility of liquidity fees and redemption gates. First American also announced today that it intends to change several share class names across its family of funds ... effective October 14, 2016."
The share class name changes are as follows: First American Govt Obligs Institutional Investor Share will be V shares; FA Inst Prime Obligs I Shares will be T shares and Institutional Investor shares will be V shares; FA Treasury Obligs Reserve Shares will be G shares and Institutional Investor shares will be V shares; FA Tax Free Obligs Institutional Investor shares will be V shares; and FA US Treasury MMF Institutional Investor Shares will be V shares.
In the April edition of our Money Fund Intelligence, we profile Tory Hazard, President and COO of Institutional Cash Distributors. Hazard talks about the growth of ICD, which has expanded beyond money funds to include short-term bond funds, SMAs, private funds, and bank deposit products. He says, "Institutional Prime money funds are still going to be a very important part of the portfolios." Hazard also discusses enhancements to the ICD Portal slated to debut next week to help investors deal with upcoming reforms. He says, "We're extremely excited about 2016 and beyond." (We reprint the MFI article below. For more on ICD's enhancements, see our April 15 News, "Treasury Strategies, Fitch on New Disclosure; ICD Adds Enhancements," or see ICD's press release.")
MFI: Tell us about ICD's history. Hazard: Institutional Cash Distributors, or ICD, was launched in 2003 by Tom Newton (Chairman), Jeff Jellison (CEO, NA), and Ed Baldry (CEO, EMEA). I joined the company in 2009 and currently serve as President and COO. MFI: How much do you distribute? Hazard: We have over $70 billion in assets in the U.S., and about $8 billion offshore. We have approximately 35 fund families on the portal and about 300 funds. That includes money funds, as well as other types of portfolios. When we saw that changes were [proposed] with money fund reform, we were very active in fighting against onerous over-regulation. We were happy when the rules finally came out [that] they included the simplified tax accounting method. That was, as we saw it, the biggest challenge that was going to face prime money market funds. With that [solved], Institutional Prime money market funds are still going to be a very important part of the portfolios.
MFI: What is your best feature? Hazard: For us, the main attraction is the selection of products. Not only do we have all different types of money market funds in one place for efficient trading, we also offer other funds for clients. We have a federally insured cash account -- several clients are invested in that. You can invest [via] the portal and it flows all the way through to our reporting and our "Transparency Plus." Also, we have several clients that are invested in short duration bond funds that are looking to pick up a little yield, especially in Europe, to offset the [negative yields] that they've been [experiencing]. And we have clients that are invested in SMAs through ICD and, again, those positions are put into the Transparency Plus risk analytics.
Then, through our relationship with Tradeweb, you can purchase Time Deposits through [their] platform, and that is integrated into ICD. So selection is a big part of it. We knew that our clients wanted additional products, so that's what we were focused on over the last year and a half. We're also focused on providing the best VNAV solutions. We'll be able to show throughout the portal various ways to use the new information that is being reported so that our clients can make great decisions -- not only on the right products to purchase, but to do so in a way that is efficient and streamlined for them.
MFI: What are some other attractions? Hazard: A second major benefit would be the streamlined nature of how ICD delivers its product. More than 100 of our clients have integration into 10 different treasury workstation [platforms] -- so we work with all the relevant treasury workstations. We also have "auto-pay" technology, which is helpful in some situations with the settlement. If certain parties need that money quicker, the secure automated payment product is available to them to help streamline that process. The other major benefit is our service. We put together a global trading desk. We have desks that operate in London, Boston, and San Francisco.... So it's been a combination of the service we provide, the products we provide -- the technology products as well as the investment products -- and the integration. Also, we have great relationships with our fund companies.
MFI: Are customers ready for reform? Hazard: Ninety five percent of our clients have not made any changes to their lineups. Just a small portion of them have started to make some moves from prime funds into other products, such as these federally insured accounts or government accounts. It's just the uncertainty, I think, that's causing a small amount of them to do that. We've been going on road shows and meeting with clients in various parts of the country.... What we've found is, when they understand the fees and the gates and look at the value of different investment types versus their objectives, they're finding that Prime funds are still at the top of the list. Say it's a 15 basis point [spread] between Government and Prime funds -- in a billion dollar portfolio would leave over $1 million a year on the table.... They also realize that the fund managers are really, for their own viability, going to manage the assets to keep their weekly liquidity well above that 30%. They know that if they are in a position where they need to impose a fee or a gate, they're going to have a lot of trouble competing with the funds that don't.
MFI: Have higher yields restored fees? Hazard: Absolutely. The interest rate hike has helped to restore our margins closer to where we used to be. It's a welcome relief for us, because what we've done over the last several years is we have invested an enormous amount of money in our technology. In doing so, we made the bet that at some point, we would restore fees back to the normal profit margins, and it's been moving in that direction.
MFI: Are investors getting "re-sensitized" to yield? Hazard: If you look at the AFP Liquidity Survey, capital preservation is still the number one goal, with liquidity being number two. Yield is a distant third. But I think yield is a consideration for clients if they can put a portfolio together that has capital preservation and liquidity in mind. If they look at their analytics and their concentrations, there are ways for clients to put portfolios together that will increase yield while reducing risk. We're seeing that happen a lot more. They're looking at how they can optimize their portfolio, which is something that we haven't seen in a long time.
MFI: Tell us about your global investors. Hazard: We offer funds in 8 different currencies for our clients. Some are overseas for strategic reasons and some are overseas because of American tax policy. Each country has its own complexities. In Europe, where banks and money funds have negative yields, we see a lot of clients investing in short duration bond funds to get an overall positive return.
MFI: Are you looking to expand your offerings? Hazard: Absolutely. We have about 20 short duration bond funds on our platform, globally. The way that we've always built out our fund lineup is, if a client requests a particular product or fund, we will go to that fund company and set them up on our platform. We're doing that right now with some of the private funds that are coming on our platform. MFI: Any private funds live on the platform yet? Hazard: Yes.
MFI: What is your outlook for the rest of the year? Hazard: We're extremely excited about 2016 and beyond. We have been working to prepare for this [for some] time. We're getting a little bit of a break on interest rates. Our product lineup is extremely extensive, and we have the VNAV solutions that should lead the industry.... On April 14, we [did] a webinar where we ... showcase[d] the VNAV enhancements to the portal. We're also doing a road show, and we're going to publish a white paper that's going to discuss not only the challenges but the solutions to how corporate treasury is going to trade in this post-regulatory environment.
MFI: How are clients feeling? Are they adjusting to the new reality? Hazard: They actually have become less apprehensive the more they see. We had a road show in Los Angeles last week, [where] we unveiled a lot of the new features that we're including on ICD Portal to help them trade in this new environment. Once they saw the various types of information that they'll be receiving in various different views, they have gotten a lot more comfortable with the October reform requirements and time frame. We've been talking with our clients from the beginning and getting their input on these money market fund reform enhancements in the portal. So they've seen the development over the course of the last six months and we've shared the results with some of our clients. (Contact us to request the full interview in the latest issue of Money Fund Intelligence.)
Crane Data released its March Money Fund Portfolio Holdings yesterday, and our latest collection of taxable money market securities, with data as of Feb. 29, 2016, shows increases in Treasuries, Other (Time Deposits), CDs, Agencies, and Repo. The only sectors that were down were CP and VRDNs. Money market securities held by Taxable U.S. money funds overall (tracked by Crane Data) increased by $64.2 billion in February to $2.676 trillion. MMF holdings increased by $6.0 billion in January, but decreased by $2.2 billion in December. Repos remained the largest portfolio segment, followed by Treasuries and Agencies. CDs were in fourth place, followed by Commercial Paper, Other (mainly Time Deposits) securities and VRDNs. Money funds' European-affiliated securities represented 27.6% of holdings, up slightly from the previous month's 27.0%. Below, we review our latest Money Fund Portfolio Holdings statistics.
Among all taxable money funds, Repurchase Agreements (repo) increased $4.4 billion (0.8%) to $558.3 billion, or 20.9%, after decreasing $182.2 billion in January and increasing $176.6 billion in December. Treasury securities had the biggest increase, rising $40.9 billion (8.2%) in February to $538.2 billion, or 20.1% of holdings, after falling $3.4 billion in January and $33.2 billion in December. Government Agency Debt increased $5.5 billion (1.1%) to $496.8 billion, or 18.6% of holdings, after increasing $7.5 billion in January and $35 billion in December. The steady rise in Treasuries and Agencies has been driven by the conversion of about $190 billion (so far) of Prime fund assets to Government funds.
Certificates of Deposit (CDs) were up $7.6 billion (1.6%) to $472.5 billion, or 17.7% of holdings, after rising $33.0 billion in January and decreasing $51.8 billion in December. Commercial Paper (CP) was down $1.8 billion (0.5%) to $355.8 billion, or 13.3% of taxable assets, while Other holdings, primarily Time Deposits, jumped $8.1 billion (3.5%) to $239.4 billion, or 8.9% of holdings. VRDNs held by taxable funds decreased by $500 million (3.4%) to $15.2 billion (0.6% of assets).
Among Prime money funds, CDs represent just under one-third of holdings at 32.9% (up from 31.0% a month ago), followed by Commercial Paper at 24.7% (down from 26.6%). The CP totals are primarily Financial Company CP (14.5% of total holdings), with Asset-Backed CP making up 6.2% and Other CP (non-financial) making up 4.0%. Prime funds also hold 6.4% in Agencies (down from 7.2%), 5.9% in Treasury Debt (up from 5.2%), 3.3% in Treasury Repo (down from 3.6%), 4.8% in Other Instruments, 5.1% in Other Instruments (Time Deposits), and 6.3% in Other Notes. Prime money fund holdings tracked by Crane Data total $1.439 trillion (up from $1.427 trillion last month), or 53.8% of taxable money fund holdings' total of $2.676 trillion.
Government fund portfolio assets totaled $704 billion, up from $683 billion in January, while Treasury money fund assets totaled $533 billion, up from $502 billion in January. Government money fund portfolios were made up of 57.4% Agency Debt, 20.7% Government Agency Repo, 8.4% Treasury debt, and 13.3% in Treasury Repo. Treasury money funds were comprised of 74.1% Treasury debt, 25.2% in Treasury Repo, and 0.7% in Government agency, repo and investment company shares. Government and Treasury funds combined total $1.237 trillion, or 46.2% of all taxable money fund assets.
European-affiliated holdings rose $34.7 billion in February to $739.0 billion among all taxable funds (and including repos); their share of holdings increased to 27.6% from 27.0% the previous month. Eurozone-affiliated holdings increased $24.5 billion to $436.7 billion in February; they now account for 16.3% of overall taxable money fund holdings. Asia & Pacific related holdings decreased by $11.3 billion to $274.6 billion (10.3% of the total). Americas related holdings increased $39.0 billion to $1.658 trillion and now represent 62.0% of holdings.
The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements, which dropped $9.0 billion, or 3.2%, to $275.2 billion, or 10.3% of assets; Government Agency Repurchase Agreements (up $9.5 billion to $211.1 billion, or 7.9% of total holdings), and Other Repurchase Agreements ($71.9 billion, or 2.7% of holdings, up $3.9 billion from last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $500 million to $209.1 billion, or 7.8% of assets), Asset Backed Commercial Paper (down $3.5 billion to $89.7 billion, or 3.4%), and Other Commercial Paper (up $1.2 billion to $57.0 billion, or 2.1%).
The 20 largest Issuers to taxable money market funds as of Feb. 29, 2016, include: the US Treasury ($438.2 billion, or 20.1%), Federal Home Loan Bank ($349.3B, 13.1%), Wells Fargo ($88.3B, 3.3%), BNP Paribas ($83.0B, 3.1%), Credit Agricole ($81.0B, 3.0%), Federal Reserve Bank of New York ($68.6B, 2.6%), Federal Home Loan Mortgage Co. ($62.0B, 2.3%), Societe Generale ($59.9, 2.2%), RBC ($59.2B, 2.2%), Bank of Tokyo-Mitsubishi UFJ Ltd ($56.7B, 2.1%), Bank of Nova Scotia ($55.7B, 2.1%), Federal Farm Credit Bank ($50.7B, 1.9%), JP Morgan ($50.7B, 1.9%), Bank of America ($46.5B, 1.7%), Credit Suisse ($45.6, 1.7%), Natixis ($44.8B, 1.7%), HSBC ($39.3B, 1.5%), DnB NOR Bank ASA ($39.0B, 1.5%), Citi ($37.8B, 1.4%), and Sumitomo Mitsui Banking Co ($36.6B, 1.4%).
In the repo space, the Federal Reserve Bank of New York's RPP program issuance (held by MMFs) remained the largest repo program with $68.6B, or 12.3% of money fund repo. The 10 largest Fed Repo positions among MMFs on 2/29 include: Fidelity Govt Cash Reserves ($27.6B in Fed RRP), Goldman Sachs FS Govt ($22.6B), JP Morgan US Govt ($20.4B), Morgan Stanley Inst Lq Res ($18.3B), Federated Govt Oblg ($16.4B), Federated Trs Oblig ($14.7B), Fidelity Govt MM ($14.0B), Wells Fargo Govt MMkt ($13.6B), Morgan Stanley Inst Lq Trs ($13.3B), and Northern Trust Trs MMkt ($13.0B).
The 10 largest Repo issuers (dealers) with the amount of repo outstanding and market share among the money funds we track) include: Federal Reserve Bank of New York ($68.6B, 12.3%), Wells Fargo ($56.2B, 10.1%), BNP Paribas ($50.8B, 9.1%), Societe Generale ($48.2B, 8.6%), Credit Agricole ($37.6B, 6.7%), Bank of America ($35.6B, 6.4%), Credit Suisse ($30.6B, 5.5%), JP Morgan ($28.9B, 5.2%), RBC ($23.4B, 4.2%), and Bank of Nova Scotia ($22.7B, 4.1%).
The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Credit Agricole ($43.4B, 4.6%), Bank of Tokyo-Mitsubishi UFJ Ltd ($43.2B, 4.5%), DnB NOR Bank ASA ($39.0B, 4.1%), Sumitomo Mitsui Banking Co ($36.6B, 3.9%), RBC ($35.8B, 3.8%), Bank of Nova Scotia ($33.0B, 3.5%), Natixis ($32.9B, 3.5%), BNP Paribas ($32.1B, 3.4%), Wells Fargo ($32.1B, 3.4%), and Skandinaviska Enskilda Banken AB ($30.5B, 3.2%).
The 10 largest CD issuers include: Bank of Tokyo-Mitsubishi UFJ Ltd ($29.7B, 6.4%), Sumitomo Mitsui Banking Co ($28.0B, 6.0%), Toronto-Dominion Bank ($25.4B, 5.4%), Wells Fargo ($25.0B, 5.4%), Canadian Imperial Bank of Commerce ($23.7B, 5.1%), Bank of Nova Scotia ($21.6B, 4.6%), Mizuho Corporate Bank Ltd ($20.3B, 4.3%), Bank of Montreal ($19.7B, 4.2%), Sumitomo Mitsui Trust Bank ($18.5B, 4.0%), and RBC ($17.3B, 3.7%).
The 10 largest CP issuers (we include affiliated ABCP programs) include: BNP Paribas ($17.4B, 5.7%), JP Morgan ($17.1B, 5.6%), Commonwealth Bank of Australia ($16.0B, 5.3%), RBC ($15.2B, 5.2%), HSBC ($12.7B, 4.2%), Westpac Banking Co ($12.4B, 4.1%), Bank of Tokyo-Mitsubishi UFJ Ltd ($10.9B, 3.6%), Bank of Nova Scotia ($10.4B, 3.4%), Credit Agricole ($10.1B, 3.3%), and ING Bank ($9.3B, 3.1%).
The largest increases among Issuers include: US Treasury (up $40.9B to $538.2B), Wells Fargo (up $9.4B to $88.3B), Natixis (up $8.7B to $44.8B), Canadian Imperial Bank of Commerce (up $8.4B to $29.1B), Federal Home Loan Bank (up $8.2B to $349.3B), DnB NOR Bank ASA (up $5.7B to $39.0B), Credit Agricole (up $5.0B to $81.0B), Societe Generale (up $4.8B to $59.9B), Bank of Nova Scotia (up $4.5B to $55.7B), and Swedbank AB (up $4.2B to $28.0B).
The largest decreases among Issuers of money market securities (including Repo) in February were shown by: Federal Reserve Bank of New York (down $26.6B to $68.6B), Federal Home Loan Mortgage Co. (down $5.1B to $62.0B), State Street (down $4.7B to $11.6B), Nordea Bank (down $4.5B to $20.2B), Sumitomo Mitsui Banking Co. (down $3.9B to $36.6B), Toronto-Dominion Bank (down $3.7B to $36.5B), Barclays PLC (down $3.4B to $17.7B), Svenska Handelsbanken (down $3.2B to $27.0B), Credit Mutuel (down $2.9B to $20.0B), and Goldman Sachs (down $2.3B to $10.1B).
The United States remained the largest segment of country-affiliations; it represents 53.3% of holdings, or $1.425 trillion (down $29.0B). France remained in second (11.3%, $302.5B), followed by Canada (8.6%, $231.2B) in third. Japan (6.6%, $176.0B) stayed in fourth, while Sweden (4.0%, $105.9B) held fifth. The United Kingdom (3.4%, $91.0B) remained sixth, while Australia (2.9%, $76.5B) stayed in seventh. The Netherlands (2.4%, $65.1B), Switzerland (2.3%, $62.1B), and Germany (2.0%, $52.1B) round out the top 10 among country affiliations. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)
As of Feb. 29, 2016, Taxable money funds held 29.4% (up from 27.9%) of their assets in securities maturing Overnight, and another 12.0% maturing in 2-7 days (down from 13.5%). Thus, 41.4% in total matures in 1-7 days. Another 20.6% matures in 8-30 days, while 12.5% matures in 31-60 days. Note that about three-quarters, or 74.5% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-90 days, holds 10.5% of taxable securities, while 12.8% matures in 91-180 days, and just 2.2% matures beyond 180 days.
Crane Data's Taxable MF Portfolio Holdings (and Money Fund Portfolio Laboratory) were updated Wednesday, and our Tax Exempt MF Holdings and MFI International "offshore" Portfolio Holdings will be released Friday and Monday, respectively. Visit our Content center to download files or visit our Portfolio Laboratory to access our "transparency" module. Contact us if you'd like to see a sample of our latest Portfolio Holdings Reports.
The March issue of our flagship Money Fund Intelligence newsletter was sent to subscribers Monday morning. It features the articles: "Exodus: Prime & Tax-Exempt MMFs Liquidate En Masse," which reports on the most recent rash of fund conversions and liquidations; "UBS Asset Management's Abed & Sabatino on MMFs," where we profile Joe Abed and Rob Sabatino from UBS; and "Tweaks Keep Coming: JPM, Wells, BlackRock, Dreyfus," which looks at more lineup shuffles and announcements from fund groups. We have also updated our Money Fund Wisdom database query system with Feb. 29, 2016, performance statistics, and sent out our MFI XLS spreadsheet Monday morning. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our February Money Fund Portfolio Holdings are scheduled to ship Wednesday, March 9, and our March Bond Fund Intelligence is scheduled to go out Monday, March 14.
MFI's lead article on the "Exodus," says, "We've documented the massive shift from Prime to Government funds, but the latest fallout from the SEC's MMF reforms is widespread fund liquidations. February was another busy month for both liquidations, especially Tax-Exempt MMFs, and fund conversions. This month's wave of Prime to Government declarations brings our total to $272.0 billion in MMFs "going Government" ($172.4 billion of this has converted to date). The new moves come from BBH, Invesco, MassMutual, PIMCO, PNC, and UBS."
The piece explains, "Among the most recent Prime to Govt conversion announcements, the $1.8 billion BBH Money Market Fund filed to convert to BBH US Govt MMF on April 1. (See our Feb. 16 News.) The $441 million MassMutual Premier MMF will change into MassMutual US Govt Premier MMF on May 1. (See our Feb. 11 Link of the Day.)"
It adds, "Crane Data's Pete Crane tells Fund Action, "For most of these small providers that have under $1bn and use their money fund just as a convenience for their clients, it's a no brainer.... The costs of converting to prime are substantial with the systems issues of dealing with a floating NAV, if they're institutional, or the gates and fees if they're retail or institutional. It's a pain for the systems. Their boards of directors don't want the responsibility of the gates and fees even though it's unlikely to happen."
Our UBS Profile reads, "This month, Money Fund Intelligence profiles the leaders of the money market fund team at UBS Asset Management, Joe Abed, Global Head of Distribution for Liquidity Management, and Rob Sabatino, Global Head of Liquidity Portfolio Management. They discuss how UBS is tackling the changing money fund environment, expanding its fund offerings and increasing its resources. Says Abed, "We're not just committed to the liquidity business, we're growing both our fund family and our distribution and investment team globally."
Responding to the question: What is your top priority right now? Abed says, "[It is] assuring that our menu of offerings continues to meet the needs of our clients -- both in the U.S., with the changes in money market fund regulations, and globally, to serve the liquidity needs of our clients around the world.... And we're adjusting other funds to ensure we continue to serve all of our clients. Outside the U.S. we have an equally long history in the money fund business.... Last year we expanded our fund range, launching additional CNAV, short term money market funds in Euro and Sterling to sit alongside our existing short term US Dollar money market fund. We see a significant opportunity to grow our business outside the U.S., and under the leadership of James Finch, we will continue to expand our liquidity distribution team in Europe."
The "Tweaks Keep Coming" article says, "In addition to the myriad Prime to Govt conversions and fund liquidations (see our lead story), there were a number of other money fund lineup tweaks and changes announced over the past month. Among the most notable, both JP Morgan Asset Management and Wells Fargo Funds revealed multiple strike times for their Prime Inst floating NAV funds, the first managers to declare intraday pricing details. Also, we report new details on the BofA Funds/BlackRock merger, and the latest lineup tweaks by Dreyfus."
We also discuss in a sidebar, "Negative Rates in the News." It says, "Michael Cloherty, Head of US Rates Strategy at RBC Capital Markets, asks, "Why is everyone talking about negative rates? We think this all stems from the Fed's 2016 bank stress tests and the Street echo chamber." We provide an overview of IMMFA's stance on European MMF reforms in the sidebar, "IMMFA on European Regs." Finally, as we do every month, we also review all the important "Money fund News."
Our March MFI XLS, with Feb. 29, 2016, data, shows total assets increasing $37.4 billion in February to $2.698 trillion, after decreasing $22.4 billion in January, increasing $44.2 billion in December, rising $3.5 billion in November, and jumping $56.5 billion in October. Our broad Crane Money Fund Average 7-Day Yield climbed by 2 bps to 0.11% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) increased 3 basis points to 0.21% (7-day).
On a Gross Yield Basis (before expenses were taken out), funds averaged 0.38% (Crane MFA, up 8 basis points) and 0.44% (Crane 100, up 7 bps). Charged Expenses averaged 0.27% (up 6 bps) and 0.24% (up 5 bps) for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 37 days (up 2 days from last month) and for the Crane 100 was 37 days (up 1 day). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
The preliminary agenda is available and registrations are now being taken for Crane's Money Fund Symposium, which will take place June 22-24, 2016 at The Philadelphia Marriott, in Philadelphia, Pa. Money Fund Symposium is the largest gathering of money market fund managers and cash investors in the world. Last summer's event in Minneapolis attracted a record 505 attendees, and we expect yet another robust turnout for our 8th annual event in Philadelphia 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 for attendees 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 or click here.) We also excerpt some comments from yesterday's speech by the New York Fed's Simon Potter, who briefly mentioned money funds.
Symposium's June 22 Opening (afternoon) Agenda kicks off with a "Welcome to Money Fund Symposium 2016" by Peter Crane, President & Publisher of Crane Data. Next, we've scheduled BlackRock to present our keynote discussion on "The New Look of Money Market Funds." (We just learned that CEO Larry Fink, who was originally invited, can't make it. So watch for this slot to be revised soon.) The rest of the Day One agenda includes: "Strategists Speak '16: Repo, Rates and Regs," with Mark Cabana of Bank of America Merrill Lynch, Joseph Abate of Barclays, and Rob Zambarana of Guggenheim Securities; "Enhanced Cash and Ultra-Short Bond Funds," moderated by J.P. Morgan Securities' Alex Roever, and featuring Dave Fishman of Goldman Sachs Asset Management and Michael Morin of Fidelity Investments; and , "Major Money Fund Issues 2016," moderated by Peter Crane and featuring Charlie Cardona of BNY Mellon Cash Investment Strategies, John Donohue of J.P. Morgan AM, and Roger Merritt of Fitch Ratings. (The opening evening's reception will be sponsored by Bank of America Merrill Lynch.)
Day 2 of Money Fund Symposium 2016 begins with "Treasury Update: Supply, FRNs, and Stability Issues, with John Dolan of the U.S. Treasury. The rest of Day Two features: "Senior Portfolio Manager Perspectives," moderated by Frank Dugan of Barclays, and including Laurie Brignac of Invesco, Tim Huyck of Fidelity, and `Peter Yi of Northern Trust; "Government and Treasury Money Fund Issues," moderated by Garrett Sloan of Wells Fargo Securities, and featuring Mike Bird of Wells Fargo Funds, and Rob Sabatino of UBS Global AM; "Muni & Tax Exempt Money Fund issues" with Justin Schwartz of Vanguard, and John Vetter of Fidelity.
The Afternoon of Day 2 (after a Dreyfus-sponsored lunch) features: "Dealer Roundtable: Supply and New Products," with Stewart Cutler of Barclays, John Kodweis of J.P. Morgan Securities, and Jean-Luc Sinniger of Citi Global Markets; "Portal Panel: Transparency and Direct Investments," moderated by Ryan Kipp of Cachematrix and featuring Greg Fortuna of State Street's Fund Connect, Tony Hazard of ICD, and Steve Kraus of FIS Global; "MMF Issues in Europe and in Asia," with Reyer Kooy of IMMFA, Jonathan Curry of HSBC Global AM, and Dan Morrissey of William Fry; and "Investor Issues: Corporate, Brokerage Sweeps" with Tony Carfang of Treasury Strategies, Tom Hunt of the AFP, and Sunil Kothapalli of Wells Fargo Advisors. (The Day 2 reception is sponsored by Barclays.)
The third day of Symposium features: "State of the Money Fund Industry" with Peter Crane, Deborah Cunningham of Federated Investors, and Alex Roever of J.P. Morgan Securities; "Money Fund Reforms: Outstanding Issues," moderated by Joan Swirsky of Stradley Ronon and featuring Jane Heinrichs of the Investment Company Institute, Sarah ten Siethoff of the U.S. Securities & Exchange Commission, and Jack Murphy of Dechert LLP; "Reform Issues: Credit Ratings, Floating NAVs" with Jimmie Irby of JPMAM and Charles Hawkins of BNY Mellon Asset Servicing. Finally, the last session is entitled, "Money Fund Data, Statistics, and Software," with Peter Crane presenting on the latest money fund information tools.
We hope you'll join us in Philadelphia this June! (We'd also like to encourage attendees, speakers and sponsors to register and make hotel reservations early.) In other conference news, Crane's 4th annual "offshore" money fund event, European Money Fund Symposium, will be held in London, England, September 20-21, 2016. This website (www.euromfs.com) will be live soon. (Contact us to inquire about sponsoring or speaking.) Our next Money Fund University "basic training" event is tentatively scheduled for Jan. 19-20, 2017, in Jersey City. Finally, the date and location for our inaugural Bond Fund Symposium are set –- it will be held March 23-24, 2017 in Boston. Watch www.cranedata.com in coming months for more details on these events.
In other news, Simon Potter, the executive vice president of the New York Federal Reserve, spoke Monday on "Money Markets after Liftoff: Assessment to Date and the Road Ahead." Potter discussed the Fed's RRP program, saying, "[T]he Federal Reserve instead pursued offering an overnight investment opportunity that could, with sufficient capacity, intensify competition in money markets and, without necessarily draining reserves, enhance the transmission of IOR into other overnight money market rates. This approach entailed a twist on a traditional Federal Reserve tool, reverse repos: Instead of running quantity-based, term operations aimed at altering reserve levels, the Desk would run interest-rate-based overnight operations aimed directly at influencing market rates.... To summarize my conclusion about the performance of the operating framework to date: I am extremely pleased with what we've seen so far."
He adds, "We have learned a lot about the structure of our operations from our experience with liftoff.... Let's begin with quantifying the aggregate capacity limit.... [T]he ON RRP is currently being run with an aggregate capacity limit of around $2 trillion, which is far in excess of typical daily demand and well above the $300 billion capacity limit the facility had had since September 2014. As the FOMC made clear in the minutes to its March 2015 meeting, this elevated capacity was intended to ensure a smooth liftoff, but the absence of an aggregate cap is only temporary. This is why the recent January minutes included a discussion of when and how it will be appropriate to reinstate an aggregate cap."
Potter continues, "So, what have we learned about the appropriate level of the cap? It seems likely that having a very elevated aggregate capacity was helpful in controlling market rates initially, perhaps because it showed the FOMC's commitment to achieving interest rate control, but it's unclear exactly how much available capacity, or "headroom," is needed to maintain such control. `Our recent experience suggests that having reasonably high aggregate capacity can help improve control without necessarily encouraging greater use of the facility.... This means that they might accept relatively low rates in money markets.... So, having a high capacity could actually reduce ON RRP take-up."
Finally, he explains, "We are also paying close attention to developments in the money market mutual fund industry and their potential impact on policy implementation The Securities and Exchange Commission recently announced new regulations for these funds aimed at enhancing financial stability. One important feature of these new rules is that government-only money funds receive different regulatory treatment than prime funds, possibly making government-only funds more attractive for some institutional investors. If the assets under management in government-only money funds were to grow significantly, that could put upward pressure on ON RRP take-up, since most fund managers consider the facility to be a government investment. As I noted earlier, we would not want to see growth in government-only money funds if it were predicated on a mistaken impression that ON RRP would be around indefinitely and with high capacity. Also, if assets under management in prime funds were to decline sharply, this could possibly lead to less efficient transmission of monetary policy."
Footnote 49 in the speech's transcript notes, "Assets under management in government-only funds could grow two ways: Prime funds could convert into government-only funds, or prime fund investors could transfer their money into government funds. Most prime funds have announced their intentions at this point, and among those that have converted to government funds, take-up has not markedly increased, so therefore we are less concerned about such conversions, but we continue to pay close attention to them, as we do to investor behavior."
The Weekend Wall Street Journal writes "Money-Fund Yields Are Rising After the Fed Move. It says, "The yields on money-market mutual funds already are starting to tick up in the wake of the Federal Reserve's boost to short-term interest rates on Wednesday. The average one-day yield for the 100 largest taxable money funds was 0.10% as of Thursday, up from 0.08% the prior day and 0.06% a week earlier, according to Crane Data LLC, a Westborough, Mass., firm that tracks money funds. Money funds buy very short-term government and corporate debt and aim to maintain a steady $1 share price. Investors in the funds "have been starving on zero yield for eight years now," said Peter Crane, president of Crane Data. It should take a little more than a month for higher rates to be fully reflected in fund yields, as it takes that long for the average money fund to turn over its portfolio, Mr. Crane said. But money-fund investors won't necessarily see an increase in yield matching the Fed's quarter-point boost in its short-term rate target.... [I]nvestors in some money funds may not see the full increase in market interest rates because of the continued unwinding of fee waivers that mutual-fund companies had put on their funds in the low-rate environment.... Across the industry, "my wild guess is that half of the first rate hike might flow through to investors," Mr. Crane said.... Money funds will decide on a fund-by-fund and day-by-day basis how much of the rate increase to pass through to investors, Mr. Crane said. The rate increase "may cause a flurry of interest" in money funds by some savers, and some fund companies may choose not to remove fee waivers right away because they won't want to be left behind in that initial investor interest, he said. That will depend on their customer base and competitive position, he added. That calculus won't apply if money funds have particularly low expenses and already have been able to restore their charges to the full usual levels." In other news, Bloomberg wrote Friday, "Day 1 After Fed Liftoff Shows Move Catapults Money Market Rates."
The November issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "MF Consolidation Accelerates; Govt Fund Conversions Begin," which looks at Prime to Government fund conversions, consolidation, and Schwab and Fidelity's declaration of "retail" funds; "Prior Speaks on Changes; New Reality at Fidelity," where we summarize recent comments from Fidelity's Nancy Prior and changes to the firm's funds; and "BlackRock Buys BofA MMFs in Biggest Deal of Decade," which recaps the news that BlackRock acquired BofA's $87 billion money fund business. We have also updated our Money Fund Wisdom database query system with Oct. 31, 2015, performance statistics, and sent out our MFI XLS spreadsheet earlier. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our November Money Fund Portfolio Holdings are scheduled to ship Tuesday, November 10, and our November Bond Fund Intelligence is scheduled to go out Monday, November 16.
MFI's lead "Consolidation" article says, "Acquisitions, liquidations, and conversions headlined a busy month in the money market fund space. With now less than a year until MMF reforms take effect, some Prime funds have already begun converting into Government funds. The first batch of these took place this week, and more are slated to convert in December and throughout 2016. To date, over $230 billion in Prime money funds have converted or declared their intent to convert into Government funds, with over $40 billion converting this week and next. On the acquisition front, BlackRock shook the money fund world with its purchase of BofA's cash management business, and a steady stream of minor fund liquidations, conversions and announcements continued."
The piece continues, "In October, two small Prime money market funds announced conversions to Government, and two more firms announced their exits from the money market space. Nationwide will convert its $1.0 billion Nationwide Money Market Fund and its $1.8 billion Nationwide VIT MMF to Government funds on 10/14/16. Also, Pioneer is converting its $280 million Pioneer Cash Reserves from Prime to Government on 11/13/15. Further, William Blair filed to liquidate its $1.4 billion Ready Reserves Fund on Nov. 18, and Delaware filed to convert its $169 million Delaware Cash Reserves to Delaware Ultrashort [Bond] Fund in Jan. 2016."
Our latest MFI "profile," reads, "Fidelity President of Fixed Income Nancy Prior spoke recently about the state of the money market fund industry in a speech at the AFP Annual Conference entitled, "Money Market Funds: The New Reality." She discussed Fidelity's second phase of changes to its money market fund lineup, which were announced October 14, and also talked about the size of the Government securities sector, conservative ultra-short bond funds and the fact that there is no "silver bullet" for corporate cash investors."
It adds, "The big news in the recent announcement, which followed the late January shocker that Fidelity Cash Reserves will "go government," is that Fidelity will convert both its $65.5 billion Fidelity Institutional Money Market Portfolio and its $2.2 billion FIMM Tax Exempt Portfolio into Retail funds. Fidelity will retain just one Prime Institutional fund, the $47.8 billion FIMM Prime Money Market Portfolio."
We quote Prior, "In the end, MMFs survived a very long and difficult regulatory process, and will continue to exist in a form we all recognize. That survival was not a given through a series of ups and downs of a regulatory process that lasted more than five years. One result of the regulation, however, is that the current value proposition of prime MMFs -- stability, liquidity, and a competitive market yield -- has been diminished. In fact, investors will no longer be able to maximize all three with any single MMF product. There will be tradeoffs between the different types of funds, and investors will have to choose which features are most important to them. For many of you here, prime MMFs have traditionally been a great cash investment option. They met your needs by providing all three elements -- stability, liquidity, and a competitive yield."
The "BlackRock Buys BofA" article says, "In one of the largest acquisitions ever in the money market fund space, BlackRock announced that it was taking over management of BofA Global Capital's cash business. BofA Funds is the 14th largest manager of money market fund assets that we track with $48.3 billion -- and according to BlackRock's press release announcing the move, has $87 billion in total cash assets under management. Prior to this transaction, the largest money fund mergers in the past included both BlackRock's merger with Merrill Lynch Investment Management in 2006 and BlackRock's merger with Barclays Global Investors in 2009. (See our Dec. 2, 2009 News, "Merged BlackRock, BGI Form World's 3rd Largest Money Fund Manager.") When the BofA transaction is complete, BlackRock will become the second largest manager of money fund assets with about $370 billion in AUM, jumping ahead of now No. 2-ranked JP Morgan."
We also look at how money fund managers are reducing fee waivers in the sidebar, "Fee Waivers Being Reduced." It says, "As yields creep up and a possible interest rate hike looms, money fund managers are beginning to reduce the amount of fee waivers. In Q3 earnings calls and releases, Federated, Schwab, Northern Trust and T. Rowe Price all reported lower fee waivers and higher MMF revenue. And, we take our quarterly look at the largest money fund markets in the world in our story, "Global MMF Data Shows: Big Jumps in Ireland and China." It says, "The Investment Company Institute's latest "Worldwide Mutual Fund Assets and Flows" show that global money market mutual fund assets increased in the 2nd Quarter of 2015, rising $31 billion, or 0.7%, to $4.580 trillion. Ireland solidified its spot as the second largest MMF market with a big jump, while China and Luxembourg also gained assets in Q2. Globally, MMF assets increased by $107.5 billion, or 2.2%, over the past year (through 6/30/15)."
Our November MFI XLS, with Oct. 31, 2015, data, shows total assets increasing $56.5 billion in October after declining by $9.4 billion in September, rising $7.2 billion in August, and jumping $52.4 billion in July. YTD, MMF assets are down by just $8.2 billion, or 0.3% (through 10/31/15). Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at 0.02%, while our Crane 100 Money Fund Index (the 100 largest taxable funds) went up a basis point to 0.05% (7-day).
On a Gross Yield Basis (before expenses were taken out), funds averaged 0.18% (Crane MFA, up one bps) and 0.21% (Crane 100, unchanged). Charged Expenses averaged 0.15% (unchanged) and 0.17% (up one bps) for the two main taxable averages. The average WAMs (weighted average maturities) for the Crane MFA was 36 days (up two days from last month) and for the Crane 100 was 36 days (unchanged). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)Archives »