A press release entitled, "Goldman Sachs Asset Management Updates Risk Management Platform," says, "Goldman Sachs Asset Management announced today the launch of the new "Fund Tracker" feature, the latest addition to its suite of Risk Management solutions on the Goldman Sachs Global Liquidity Services Portal. This launch signifies GSAM's continued commitment to provide its clients with heightened transparency and risk management tools. GSAM has enhanced its global, multi-fund family online liquidity tool with the "Fund Tracker," a feature that aims to help corporate treasurers and banks better evaluate funds in a changing regulatory environment. In July 2014, the Securities and Exchange Commission announced new rules regulating money market mutual funds. Under the new rules, institutional prime funds will be required to float their daily Net Asset Values and all funds other than government funds must have liquidity fee and redemption gate features that can be implemented at certain liquidity levels. All funds will be required to increase transparency into their portfolios through more frequent holdings disclosure. While the new fund regulations do not change the risk profile or minimum investment requirements of money market funds, they do introduce new fund features and additional portfolio information that money market fund investors may take interest in monitoring and understanding in greater detail than in the past. The "Fund Tracker" offers a deeper look into money market fund metrics that hold increased importance as investors prepare for implementation of the new rules, such as funds' market value NAVs and daily and weekly liquidity levels. Clients can view these data points in the context of other fund analytics, such as portfolio assets, interest rate risk measures, and performance. Visual analytics, insights from GSAM portfolio managers, and proactive notifications are all features aimed to equip multinational corporations and financial intermediaries to understand funds' positioning today so they can be better prepared for implementation of the new regulatory changes." Kathleen Hughes, Managing Director and Head of the Global Liquidity Sales team, comments, "Leveraging over 30 years of experience managing risk in money market funds, GSAM continues to help corporate treasurers better understand their portfolios. This is another tool we are providing clients in response to feedback that they wanted a more centralized and consistent way to see risk exposures and monitor fund metrics. Investors have many questions about how regulatory reform will affect them. With these added metrics, and new original, written content, we hope to better guide institutional investors in this ever-changing investment landscape."
On Wednesday, the Federal Reserve Bank of New York issued yet another "Statement Regarding Reverse Repurchase Agreements." The latest reads, "As noted in the October 19, 2009 Statement Regarding Reverse Repurchase Agreements, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) has been working internally and with market participants on operational aspects of tri-party reverse repurchase agreements (RRPs) to ensure that this tool will be ready to support the monetary policy objectives of the Federal Open Market Committee (FOMC). These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future. The New York Fed has been conducting daily, overnight RRP operations as part of an operational readiness exercise. Pursuant to an authorization from the FOMC to modify the offering rate of these operations, the Desk intends to adjust the offering rate." For operations conducted October 30 to October 31, the offering rate is 5 basis points; for operations conducted November 3 to November 14, the offering rate is 3 basis points; for operations conducted November 17 to November 28, the offering rate is 7 basis points; for operations conducted December 1 to December 12, the offering rate is 10 basis points; for operations conducted December 15 and after, the offering rate is 5 basis points. The release continues, "All other terms of the exercise will remain the same. Any future changes to these operations will be announced with at least one business day's prior notice on the New York Fed's website. The Federal Reserve continues to enhance operational readiness and increase its understanding of the impact of RRPs through technical exercises. In further support of its objectives, the FOMC instructed the Desk to examine how term RRP operations might work as a supplementary tool to help control the federal funds rate, particularly when there are significant and transitory shifts in money market activity. In support of this goal, and to reduce potential volatility in money market rates, the FOMC instructed the Desk to conduct term RRP operations that cross year-end. The operations will mature on or about January 2, 2015. The operations will be open to all eligible RRP counterparties and will use Treasury collateral. The Desk intends to offer the operations via auction at various times in December. No more than $300 billion in term RRP transactions will be outstanding at any given time. This limit is in addition to the limit on overnight reverse repurchase agreements, which remain subject to a separate overall size limit of $300 billion per day. The Desk will release further information about these term RRP operations by early December." See also, Reuters' "Fed to launch longer-term reverse repos test in December".
Fitch Ratings sent out a release entitled, "US Money Funds May Benefit from Market Illiquidity," which says, "US money funds may benefit from inflows as investors increase their structural cash allocations in response to lower market liquidity.... Between Sept. 15 and Oct. 15, the VIX index, an indicator of market volatility, nearly doubled, while US money fund assets grew by $37.9 billion (1.5%), driven by flows into institutional government money funds. While these flows in money fund assets may be explained by other factors, larger cash positions may represent a structural change in how portfolio managers react to changing liquidity, in addition to temporary defensive positioning in the face of the recent volatility.... While money funds face their own regulatory changes, they continue to be an efficient cash vehicle for investors, and may benefit from a shift to liquidity. Recent reforms introduced by the SEC mandate that institutional prime money funds float their net asset value (NAV) starting in October 2016, while institutional government money funds will maintain a stable NAV. Some investors, particularly corporate treasurers, have indicated that these changes will likely cause them to shift some assets out of institutional prime money funds and into alternative liquidity products, including government money funds." Fitch also reports, "U.S. Money Fund Reform Will Have an Uneven Impact on ABCP," which states, "Money fund reform's impact on asset-backed commercial paper (ABCP) programs will vary, depending on each program's investor base composition.... Investments in ABCP by institutional prime money funds are expected to decrease following the Securities and Exchange Commission's (SEC) recent amendments to Rule 2a-7. The SEC's changes will likely cause some outflows from institutional prime money funds, which have traditionally been large investors in ABCP. However, we expect outflows from money funds will take place gradually over the implementation period (which will end in October 2016) and will likely be offset by inflows into new products that invest in ABCP. Fitch believes that the ABCP market will weather the reforms as other investors step in to replace money funds.... Estimates for potential outflows vary greatly, with the high end of the range at about 50% of institutional prime money fund assets, or approximately $476 billion. Based on these funds' investments in ABCP, this could amount to about 13% of total ABCP outstandings as of July 2015, or $32 billion.... At the same time, some of the money leaving institutional prime money funds is expected to migrate to products with similar investment mandates, reducing the likely impact of the outflows from money funds."
The Association for Financial Professionals Annual Conference is next week, November 2-5, in Washington, D.C. The country's largest corporate treasury event attracts almost all of the the major providers of institutional money funds and online trading "portals". The description says that the event features "over 6,500 treasury and finance professionals" and says, "Here are the top 6 reasons why you should attend the most important event for treasury and finance: 1. You'll bring back real solutions to the office with over 140+ educational sessions across 8 tracks; 2. Insights into the current global political upheaval with these highly distinguished speakers; 3. Build your professional network at events like the Welcome Reception and the Industry Roundtables Luncheon; 4. Make the most of time away from the office with pre-conference seminars on targeted subjects; 5. Earn continuing education credits in just a few days; 6. Discover innovative products and solutions to streamline operations and cut costs in the Exhibit Hall." Several sessions involve money market funds and/or cash investing. The keynote speakers include former Fed Chairman Ben Bernanke on November 2. Also, AFP's October 27 issue of its `EconWatch newsletter says, "Companies sharply slowed their accumulation of cash during the 3rd quarter, pointing towards an improved corporate outlook in business conditions. These results suggest building confidence among U.S. businesses during Q3. 34% of companies built out their cash balances during the quarter versus 28% that had shed cash during the 3 months. The difference of +6 was down 6 points from the previous quarter's reading and off 13 points from the Q3 2013 survey results. 27% of organizations' cash balances at the end of Q3 2014 were larger than they were a year earlier, while 31% held smaller cash balances versus Q3 2013 levels. The difference of -4 is 31 points below the previous quarter's reading, 25 points below the Q3 2013 reading and the lowest reading in the history of the data series." Finally, see AFP's article, "How Will Basel III Impact Corporate Deposit Strategies?".
Reuters wrote "Alibaba-linked money market fund sees first decline" Friday. It said, "Yu'e Bao, the online money market fund offered by an affiliate of Chinese e-commerce giant Alibaba Group Holding Ltd, reported its first [asset] decline since its launch last year, Chinese asset manager Tianhong Asset Management Co reported on Friday. Yu'e Bao's net [assets] decreased nearly 7 percent to 534.89 billion yuan ($87.45 billion) in the third quarter from 574.16 billion yuan ($93.87 billion) in the second quarter, as interest rates for interbank deposits declined. Easily accessible on smartphones, Yu'e Bao is China's biggest money market fund in terms of assets under management. It started in June, 2013 as a partnership between fund manager Tianhong and Alibaba-affiliated Alipay, China's biggest online payments platform. Alipay bought a majority stake in Tianhong in May. Alibaba last week changed the name of Alipay to Ant Financial Services Group as a major push into the financial services industry. Yu'e Bao attracted 2.5 million new users in the third quarter and had 149 million user accounts in total by the end of September." At $87.45 billion, Yu'e Bao would be the fourth largest money market fund in the world behind U.S. giants Vanguard Prime Money Market Fund (VMMXX, $131.2 billion), Fidelity Cash Reserves (FDRXX, $115.5B) and JPMorgan Prime MM Capital (CJPXX, 104.9b).
Money market fund bounced back this week as assets increased, according to ICI's latest "Money Market Fund Assets" report. The release says, "Total money market fund assets increased by $12.82 billion to $2.62 trillion for the week ended Wednesday, October 22, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $3.75 billion and prime funds increased by $9.41 billion. Tax-exempt money market funds decreased by $340 million. Assets of retail money market funds increased by $6.64 billion to $915.36 billion. Among retail funds, Treasury money market fund assets increased by $2.76 billion to $205.10 billion, prime money market fund assets increased by $3.73 billion to $524.86 billion, and tax-exempt fund assets increased by $150 million to $185.41 billion. Assets of institutional money market funds increased by $6.17 billion to $1.71 trillion. Among institutional funds, Treasury money market fund assets increased by $990 million to $756.19 billion, prime money market fund assets increased by $5.67 billion to $880.57 billion, and tax-exempt fund assets decreased by $490 million to $69.97 billion." The previous week, MMF assets dropped $21.9 billion. However, month to date through Oct. 22, money fund assets have increased $73.6 billion, according to Crane's Money Fund Intelligence Daily. In other news, the Boston Globe did a follow up article to their piece last Sunday "Fidelity fought Washington over money market funds -- and won." (See our October 20 Link of the Day, "Globe on Fidelity MMF Lobbying.) In "Elizabeth Warren's Silence Was Fidelity's Gain," the Globe says, "In a statement to the Globe, Warren's office said the SEC rules were "an important first step" and stressed a need to "balance the risks that money market funds can pose to the economy against the need to maintain money market funds as an important investment alternative."
Pensions & Investments released its quarterly "Money Market Mutual Funds Most Used by DC Plans" late last month. It ranks the MMFs with the most assets in defined contribution plans as of June 30, 2014. The rankings are as follows: 1. Vanguard Prime Money Market-Institutional ($15.4 billion); 2. Fidelity Retirement Money Market ($12.6 billion); 3. Fidelity Institutional MM Portfolio ($8.2 billion); 4. Vanguard Prime Money Market ($6.7 billion); 5. Fidelity Cash Reserves ($6.6 billion); 6. American Funds Money Market ($4.2 billion); 7. Wells Fargo Advantage Government ($3.7 billion); 8. Fidelity Retirement Government ($3.3 billion); 9. Wells Fargo Advantage Heritage ($2.9 billion); 10. Wells Fargo Advantage Cash Investment ($2.8 billion). In other news, the SEC adopted "Credit Risk Retention Rules", which will impact the asset-backed securities market, by a vote of 3-2 on Wednesday. Said SEC Chair Mary Jo White in her statement commented, "Today, the Commission will consider the recommendation of the staff to adopt, jointly with five other federal agencies, final rules for the asset-backed securities market that will require securitizers to keep "skin in the game." Specifically, we will consider rules to require certain securitizers to retain no less than five percent of the credit risk of the assets they securitize." In his dissenting comments, Commissioner Daniel Gallagher said, "The awfulness of today's rulemaking makes the oft-discussed issue of GSE reform all the more important.... It is time for this Commission to declare that it is no longer willing to play the frog to the prudential regulators' scorpion. We are increasingly called upon to cross the river with them on our back by going along with their ideas, only to have them sting us halfway to the opposite shore, drowning us both." (See Marketwatch's "SEC's Gallagher Calls Regulators Scorpions".)
A press release earlier this month, entitled, "BNY Mellon to Acquire U.S. Investment Manager to Cutwater Asset Manager," tells us, "BNY Mellon announced today that it has reached an agreement to acquire Cutwater Asset Management, a U.S.-based fixed income and solutions specialist with a 20-year track record and approximately $23 billion in assets under management. Located in Armonk, NY, the firm is currently a wholly-owned subsidiary of MBIA Inc." The release continues, "Upon completion of the deal, Cutwater will operate as part of BNY Mellon Investment Management and will work closely with, and be administered by, Insight Investment. Insight is one of BNY Mellon's premier investment management boutiques and one of Europe's leading investment managers. The addition of Cutwater's capabilities will enhance BNY Mellon's and Insight's U.S. platform and abilities to offer specialized fixed income solutions. Cutwater's products and investment solutions include a wide range of fixed income strategies such as core, long duration, high yield, loans and absolute return strategies." MBIA's Cutwater is known in the "cash" business for managing Local Government Investment Pools, or LGIPs, including Connecticut Cooperative Liquid Assets Securities System Plus and New Hampshire Public Deposit Investment Pool. Curtis Arledge, CEO, BNY Mellon Investment Management, said, "Cutwater brings an impressive performance history, strong intellectual capital and an investment culture consistent with BNY Mellon's. Given the unprecedented interest in the fixed income market at this time, we are excited by the opportunity to expand our investment offerings for clients as a result of this combination of fixed income capabilities." For more on recent consolidation, mergers and acquisitions in the money market space, see our article "Rates, Reforms Driving Money Fund Consolidation, Changes" in the October issue of Money Fund Intelligence.
Moody's issued a report last week entitled, "Money Funds' Supply and Yield Will Suffer Further Amid Drop in Short-Term Issuance by Banks Due to Basel III." It said, "Euro and Sterling money market funds have significantly reduced their exposure to financial institutions in recent years, offsetting the reduction mainly with government securities and reverse repurchase agreements (repos), says Moody's Investors Service. "With regulators pushing banks to reduce short-term wholesale funding, and bank credit quality deteriorating due to the depressed global economic environment between 2009 and 2012, money funds have had to find alternative sources of investments," says Marina Cremonese, a Moody's assistant vice president and co-author of the report. Euro MMFs' direct exposure to financial institutions has fallen to 54% of funds' assets under management in June 2014 from 75% in June 2010, while investments in government securities and repos have increased by 13% and 7%, respectively. Sterling MMFs have reduced their exposure to financial institutions to 72% in June 2014 from 82% in June 2010. For US MMFs, investments in financial institutions are roughly flat from four years ago. The shrinking investment supply has had a lesser impact on US MMFs as they started off with a lower exposure to financial institutions compared to Euro and Sterling MMFs, and they also benefited from the Fed's reverse repo facility. Moody's expects a further squeeze in the issuance of short-term bank securities when Basel III rules are actually implemented starting in January 2015. As a consequence of the worsening supply/demand imbalance, MMF managers will have to give up a few basis points of return in order to preserve diversification and the short maturity profile of their funds." In other news, on Friday the European Central Bank released the "Results of the Euro Money Market Survey 2014." The release explains, "The European Central Bank (ECB) is publishing the results of the "Euro Money Market Survey 2014", which highlights the main developments in the euro money market in the second quarter of 2014, comparing them with those in the second quarter of 2013."
Sunday's Boston Globe writes "Fidelity fought Washington over money market funds -- and won". The article says of Fidelity CEO Abigail Johnson, "Her trip to meet with the SEC chief in June 2012 was part of an epic and unusually harsh lobbying battle waged by Fidelity and a handful of allies in the mutual fund industry. Their mission: stop the Obama administration's move in the aftermath of the financial crisis to rein in a huge and highly profitable part of their business, money market funds.... The SEC faced withering criticism as it tried to fortify money market funds -- which emerged as a surprising threat to the economy at the height of the crisis -- against future investor runs and potentially calamitous failures.... The story also offers a window into the public policy agenda of one of Boston's richest corporate sectors. Among mutual funds, Fidelity had the most to lose.... Ned Johnson made Fidelity an early pioneer in money market funds, which are low-risk investments that offer small gains but are supposed to provide a stable and convenient place to park cash. He invented the concept of check-writing for the funds in the 1970s, helping them become hugely popular with mom-and-pop investors across America. Today Fidelity manages by far the largest amount of assets in money market funds in the world, with $410 billion. By charging just a tiny fraction of that massive sum in fees, it reaps about $650 million in annual revenue.... Five years of trench warfare lurched to a close this year, in July, when the SEC issued final rules. It was billed as a compromise, but reformers said industry got the best of the deal. The "floating" share price will be required, but only for funds that serve large institutional investors -- the category that experienced the biggest runs in 2008. The fixed $1 share price will remain in place for funds open to small-time, retail investors and for funds that invest in government and municipal debt. For Fidelity and others, it represented "a qualified victory," said Marcus Stanley, policy director for Americans for Financial Reform, a nonprofit advocacy group that sought tougher action. "They fought off a bunch of things that were much more problematic for them." At the time of passage, Mary Jo White, the former federal prosecutor and SEC chairwoman who replaced Schapiro, hailed the new rules as a "strong reform package" that will reduce the risk of runs. `Fidelity's head of fixed-income, Nancy Prior, said the SEC struck "a reasonable balance.""
Money fund assets broke a 3-week streak of big asset gains as they dropped sharply in the latest week. ICI released its latest "Money Market Fund Assets" report, which showed total money market fund assets decreased by $21.95 billion to $2.61 trillion for the week ended October 15. The release says, "Among taxable money market funds, Treasury funds (including agency and repo) decreased by $2.20 billion and prime funds decreased by $18.06 billion. Tax-exempt money market funds decreased by $1.69 billion. Assets of retail money market funds decreased by $620 million to $908.56 billion. Among retail funds, Treasury money market fund assets decreased by $330 million to $202.34 billion, prime money market fund assets decreased by $40 million to $520.96 billion, and tax-exempt fund assets decreased by $250 million to $185.25 billion. Assets of institutional money market funds decreased by $21.33 billion to $1.70 trillion. Among institutional funds, Treasury money market fund assets decreased by $1.87 billion to $755.20 billion, prime money market fund assets decreased by $18.02 billion to $874.90 billion, and tax-exempt fund assets decreased by $1.44 billion to $70.45 billion." In other news, the Financial Times wrote "Investors Pour Billions into Money Funds in “Dash for Cash." It says, "Ever since Mario Draghi introduced a negative deposit rate -- in effect charging banks who park their surplus funds at the European Central Bank -- it has been a tough time to be a money market fund manager.... But, while logic suggests return-starved investors should shun assets that offer nil, or even sub-zero, yields, MMFs now face a different conundrum: how to invest the billions flowing their way. Last week saw a record $23.46bn flow into European MMFs in spite of fears that rock-bottom ECB rates would make it harder for them to make money, according to EPFR, the data provider."
FDIC-insurance "amalgamator" StoneCastle Cash Management is hosting a webinar on "Investment Policy Considerations & Amendments Post MMF Reform" Thursday (10/16) at 3:00pm (EDT). "The question every treasurer seems to be asking is, how will the recent SEC money fund rulings and pending impact of Basel III impact my short term cash strategy? More specifically, what steps should treasurers take now to ensure their Investment Policy Statement (IPS) takes into consideration the new rules while providing flexibility to use other potential vehicles/strategies. Potential topics for discussion include the current state of the market, an update on pending reform and timetable for implementation, implications of new regulations and what they mean for your Investment Policy Statement (IPS), identification of potential, necessary amendments such as how do you account for a variable NAV money fund & how to introduce new cash-management options on your IPS. Ted Howard of iTreasurer will moderate the webinar. Greg Fayvilevich of Fitch Ratings will offer insights from his report, "Why Money Fund Reform will have uneven Impact on Corporations," provide insights on the need for financial professionals to review/update their investment policies, and introduce questions which every financial professional should be asking/discussing in light of recent reforms. Brandon Semilof of StoneCastle will offer insights from financial professionals since announced reforms, what steps are being considered and potential strategies being discussed. Brian Leach of Pimco will offer insights on potential outlook for rates from the minds of PIMCO and introduce potential strategies and approaches for organizations' strategic/longer term cash balances. The Panel discussion will be followed by a live Q&A." Click here to register. In other news, Financial Sciences Corp., issued a press release "New Release of ATOM from Financial Sciences Delivers Enhanced Business Intelligence Tools and Expanded Functionality." It says, "ATOM, Financial Sciences' integrated treasury management system (TMS), brings together all aspects of global treasury operations, financial risk management, governance and compliance into one integrated web-based solution.... This release offers enhanced business intelligence tools for complete visibility into cash and risk by providing a powerful set of management reporting dashboards, including charts, maps and tables with transaction level drilldown."Archives »