On Thursday, U.S. Securities & Exchange Commission Chair Gary Gensler gave a speech entitled, "'Jack Bogle, Haystacks, and Putting the Interest of the Clients First,' Prepared Remarks Before the 2024 Conference on Emerging Trends in Asset Management," which mainly dealt with "collective investment vehicles" including mutual funds (and the SEC's domain), and he also mentioned money market funds on several occasions. He explains, "Jack Bogle, the father of index funds, once said: 'Don't look for the needle in the haystack. Just buy the haystack.' Of course, he was talking about collective investment vehicles -- when well-regulated, one of the great financial innovations. They provide everyday investors with diversification and lower costs than investing in individual stocks or bonds. Today, registered investment advisers advise 57 million clients with respect to $129 trillion in assets." (Note: There's still time to register for our Money Fund Symposium next month in Pittsburgh, June 12-14. We hope you'll join us!)
Genser says, "[T]he U.S. has long benefitted from robust competition between nonbanks and banks in our $110-plus trillion capital markets. In fact, each of the registered funds and private funds sectors surpasses the size of the banking sector. Further, U.S. debt capital markets facilitate 75 percent of debt financing of non-financial corporations. In Europe, the U.K., and Asia, only 12-29 percent is raised in capital markets. Now turning to trends in asset management, I will discuss registered funds, private funds, and separately managed accounts."
He comments, "Investment funds registered with the SEC have grown to more than $32 trillion. This includes $6.5 trillion in money market funds as well as more than $26 trillion in other mutual funds, closed-end funds, and exchange-traded funds. This all compares to the $23 trillion banking sector.... More than half of American households, representing more than 115 million individual investors, own registered funds.... That said, concentration worried Bogle.... As it relates to U.S. money market funds, the largest 10 complexes manage 80 percent of the $6.5 trillion in net assets."
Gensler continues, "A third trend I want to touch upon is the relationship of registered funds to financial stability. In 2008 and 2020, we saw issues emanate from registered funds, particularly money market and open-end bond funds, putting everyday Americans at risk. Open-end funds have potential liquidity mismatches—between investors’ ability to redeem daily on the one hand, and, on the other, funds' securities holdings that may have lower liquidity. In the 1940 Act, Congress gave the Commission authority -- and over the years, we have adopted rules -- to address liquidity and dilution risks. We did so through reforms of money market funds in 2010 and 2014 in response to the 2008 financial crisis. We did so again in 2023 in response to the 2020 market events."
He states, "Further, the Commission has proposed amendments to enhance the liquidity risk management of open-end funds. SEC staff also has been in discussions with bank regulators regarding collective investment funds, which are managed by bank trust departments or for certain tax-qualified retirement funds and are exempt from SEC oversight. Such collective investment funds are estimated to be $7 trillion, $5 trillion at the federal level and $2 trillion at the state bank level. Rules for these funds lack limits on illiquid investments and minimum levels of liquid assets. We know from history that financial fires can spread from regulatory gaps, including when regulations don't treat like activities alike."
Gensler also comments on "Private Funds," telling us, "Many hedge funds are receiving the vast majority of their repo financing in the non-centrally cleared market. In a study of non-centrally cleared bilateral repurchase agreement (repo) data collected in June 2022, the Office of Financial Research said that 74 percent of pilot volume was transacted at zero haircut. We adopted rules last year to enhance access to central clearing in the Treasury markets. These rules will help address some of the risk in the Treasury repo markets."
Finally, he says, "Before I close, I would like to update you on some of the SEC's work in publishing aggregate data with regard to the securities markets. SEC staff yesterday began publishing a new report based on aggregated data filed by investment advisers on Form ADV.... Last month, SEC staff began publishing the Registered Fund Statistics report, which aggregates data about the registered fund industry. We recently added new data visualization pages on money market funds on our website, adding to our monthly publication of money market fund and private fund statistics, which we've done since 2014. Further, I've asked staff to make recommendations about other areas where we might update periodically published aggregate market statistics, including from Form PF."
In other news, a new Prospectus has been filed for Popular U.S. Government Money Market Fund, which is affiliated with Banco Popular de Puerto Rico. The filing lists Class A Withholding Shares (MMYXX), Class A Non-Withholding Shares (MMTXX), Class I Institutional Withholding Shares (MMFXX) and Class I Institutional Non-Withholding Shares (MMGXX), and states, "The Fund's investment objective is to seek to provide current income consistent with preservation of capital and liquidity." A table on Shareholder Fees shows "Total Annual Fund Operating Expenses after Fee Waivers and/or Expense Reimbursements for the Class A Withholding Shares & Class A Non-Withholding Shares at 1.00% and Class I Institutional Withholding Shares & Class I Institutional Non-Withholding Shares at 0.83%.
It continues, "The Fund is a U.S. 'government money market fund' (as defined in Rule 2a-7 under the 1940 Act, as amended ('Rule 2a-7')) that seeks to maintain a stable price of $1.00 per share by using the amortized cost method to value portfolio securities and rounding the share value to the nearest cent. The Fund invests at least 99.5% of its total assets in cash, government securities, and repurchase agreements collateralized by cash or government securities.... In compliance with regulatory requirements for money market funds, the Fund primarily invests in U.S. Treasury obligations and 'government securities' (as defined in section 2(a)(16) of the 1940 Act) maturing within 397 calendar days of the date of purchase, with certain exceptions permitted by applicable regulations, and repurchase agreements collateralized fully by U.S. treasury obligations and government securities. The Fund may also hold cash."
The Popular fund says, "In selecting securities for the Fund's portfolio, the Adviser focuses on securities that offer safety, liquidity, and a competitive yield. The Fund normally holds portfolio securities to maturity, but may sell a security when the Adviser deems it advisable, such as when market or credit factors materially change. The Fund is designed solely for Qualifying Investors (as defined in the section entitled 'Taxation' below). The tax treatment of this Fund differs from that typically accorded to other investment companies registered under the 1940 Act that qualify as regulated investment companies ('RICs') under Subchapter M of the Internal Revenue Code of 1986, as amended.... `The Fund does not intend to qualify as a RIC and non-Qualifying Investors may suffer adverse consequences as a result."
It discusses, "Puerto Rico Tax Exemption Risk," writing, "The Fund intends to operate in a manner that will cause it to be exempt from Puerto Rico income and municipal license tax under the Puerto Rico Internal Revenue Code of 2011, as amended, and the Puerto Rico Municipal Code, as amended, as a registered investment company. To be exempt from Puerto Rico income tax the Fund must meet certain requirements. In Puerto Rico Treasury Determination 19-04, the Puerto Rico Treasury Department held that an investment company that (i) is organized in Puerto Rico, (ii) has its principal office in Puerto Rico, and (iii) is registered with the United States Securities and Exchange Commission (the 'SEC') under the 1940 Act, will be treated as a registered investment company under the Investment Companies Act of 2013 ... and thus will be entitled to the tax exemption and other tax benefits available under the PR Code to registered investment companies."
The filing adds, "The Fund's investment adviser is Popular Asset Management LLC, a registered investment adviser ..., a wholly-owned subsidiary of Popular, Inc., a diversified, publicly-owned financial holding company registered under the Bank Holding Company Act of 1956, as amended, and subject to supervision and regulation by the Board of Governors of the Federal Reserve System. In the future, the Adviser may retain one or more sub-advisers to manage a portion of the Fund's assets."
