The hits keep coming to the Prime Institutional money fund sector, as Goldman Sachs becomes the latest fund firm to announce an exit from the space. A Prospectus Supplement filing Friday for the $1.6 billion Goldman Sachs Financial Square Money Market Fund and the $2.9 billion Goldman Sachs Financial Square Prime Obligations Fund, including its Administration, Capital, Institutional, Preferred, Select, Service, and Drexel Hamilton Class Shares, explains, "At a meeting held on April 16-17, 2024, upon the recommendation of Goldman Sachs Asset Management, L.P., the Board of Trustees of Goldman Sachs Trust approved a proposal to liquidate the Goldman Sachs Financial Square Money Market Fund and Goldman Sachs Financial Square Prime Obligations Fund, each a series of the Trust. After careful consideration of a number of factors, the Board concluded that it is advisable and in the best interest of the Funds and their shareholders to liquidate the Funds. The Funds are expected to be liquidated on or about September 16, 2024, pursuant to Plans of Liquidation approved by the Board. The Liquidation Date may be changed without notice at the discretion of the Trust's officers." This brings the total of Prime Institutional money funds declaring either pending conversions to Government or pending liquidations to 5 funds to date, representing $229.3 billion in assets, or 34.9% of the $657.0 billion total in Prime Inst MMFs (assets as of 3/31/24). (For more, see these Crane Data News stories: "Federated Liquidating Money Mkt Trust" (4/1/24), "Vanguard Market Liquidity Fund Files to Go Government, Joins American" (3/20/24) and "American Funds Central Cash to Convert to Govt to Avoid Liquidity Fees" (2/6/24).)
The filing explains, "Shares of the Funds will no longer be available for purchase as of the close of business on August 16, 2024, except that existing shareholders of the Funds may continue to purchase shares of the Funds until September 9, 2024. To the extent there are any dividend or distribution payments made prior to the Liquidation Date with respect to the Funds, they will continue to be paid either in cash, in additional shares of the Funds, or in shares of other Goldman Sachs Funds, depending on each shareholder's current election, as disclosed in the Prospectuses."
It continues, "The Funds may depart from their stated investment objectives and policies as they prepare to liquidate and distribute their assets to shareholders. It is anticipated that the Funds' portfolios will be positioned into cash, cash equivalents or other liquid assets on or prior to the Liquidation Date. In connection with the liquidation, all outstanding shares of the Funds on the Liquidation Date will be automatically redeemed by the Funds. Each shareholder of record of a Fund on the Liquidation Date will receive proceeds of the automatic redemptions equal to the shareholder's proportionate interest in the Fund's net assets plus accrued and unpaid earnings of the Fund at the time of liquidation. The liquidation of a Fund's portfolio may result in increased transaction costs, which must be borne by the Fund and its shareholders and may result in higher capital gains for taxable shareholders. Shareholders should contact their tax advisers concerning the tax consequences of the liquidation."
Goldman writes, "At any time prior to the Liquidation Date, shareholders may redeem their shares of the Funds and receive the net asset value thereof, as provided in the Prospectuses. Shareholders of the Goldman Sachs Financial Square Prime Obligations Fund may also exchange their shares for certain shares of other Goldman Sachs Funds at net asset value without imposition of an initial sales charge. Exchanges are not permitted from or into the Goldman Sachs Financial Square Money Market Fund."
They add, "Certain shareholders may redeem all or a portion of their shares of the Funds before the Liquidation Date, and as a result the Funds and their remaining shareholders may experience adverse effects. These shareholder redemptions may also negatively impact a Fund's net asset value per share."
In other news, Barron's features a piece entitled, "Money-Market Funds Look Like a Tempting Place for Your Cash. But Don't Make This Mistake." Author Allan Sloan writes, "Most of the time, money-market mutual funds are about as exciting as watching paint dry. That's what they're designed to be: boring and reliable. But these days, money funds have gotten interesting. And tempting. Maybe overly tempting."
He explains, "Owning these funds has become lots more lucrative since the Federal Reserve began raising short-term interest rates two years ago. Thanks to the Fed, money-fund yields have gone from essentially zero in early 2022 to 5%-plus today. As a bonus of sorts for money fund holders, the significant drops in Fed rates that had been widely expected by now seem to be delayed, perhaps indefinitely.... All this means that for now ... money fund holders are getting higher yields than long-term Treasury holders are getting."
The article states, "All of this has attracted lots of interest -- yes, you can groan now -- from both institutional and retail investors. Money fund assets have risen by 25% from the start of last year through April 11, according to Crane Data. That $1.3 trillion increase has boosted money fund assets to $6.48 trillion. That's a tad lower than the record $6.54 trillion on April 2, which Pete Crane says is because people are taking money fund withdrawals to help pay their income tax bills."
It continues, "These days, with stocks lurching up and down, there's a lot of comfort and safety in money-market funds for retail investors as well as institutional investors. Sure, money funds aren't exciting. But you don't have to deal with wild daily or weekly price lurches. That's why I say that money funds are tempting. It's easy to fall in love with reliability and predictability, given the hectic financial and political markets that we're dealing with. And a 5%-plus yield is pretty nice, too. But watch out. Don't fall in love with your money fund."
Barron's says, "Sure, it's great to be getting a decent yield on your short-term money after years of earning almost nothing on it. In fact ... rates were so low from the first quarter of 2020 through the first quarter of 2022 that the yield on money funds was significantly less than the dividend income of the S&P 500.... That pattern has since reversed itself, of course. S&P 500 and government fund incomes became almost equal two years ago, when the Fed started increasing rates, and money funds now yield about four times as much."
Finally, they comment, "It's really comforting to see the nice, high, reliable income from your money fund. But it's a mistake to consider it a permanent investment like stocks or bonds. That's because, among other things, someday money fund yields will fall. And over the long-term, returns on cash have been far lower than stock market returns.... In any event, you need to be careful not to be tempted by the safe money fund returns if you have a long time horizon. It's one thing to earn a nice return on cash. But don't be tempted to treat money funds as a long-term investment class like stocks and bonds. That would be a long-term mistake."
