Yet another "partial" mutual fund merger deal has occurred with the announcement that Morgan Stanley will sell its Van Kampen retail mutual funds to Invesco. The Morgan Stanley Institutional Liquidity Funds, which account for approximately $28.79 billion of the manager's total $46.57 billion in domestic U.S. money fund assets (or 61.8%), and the majority of MS retail money fund assets, are not part of the deal and will remain with Morgan Stanley Investment Management. Just $800 million of Morgan Stanley's $17.79 billion in retail money funds appear to be part of the Invesco deal, and the Active Assets suite of brokerage sweep funds appear to be excluded from the deal. (Morgan Stanley also manages an additional $5.26 billion in "offshore" money funds that are not involved in the merger either.)
The MS press release says, "Invesco will purchase Morgan Stanley's retail asset management business, operating under both the Morgan Stanley and Van Kampen brands, in a stock and cash transaction valued at $1.5 billion. Morgan Stanley will receive a 9.4 percent minority interest in Invesco, allowing the Firm to participate in the future growth of the combined Invesco and Morgan Stanley/Van Kampen businesses.... Going forward, Morgan Stanley Investment Management (MSIM) will be comprised of several distinct institutional-focused businesses. These include: a long-only institutional business (including equity and fixed income), a direct hedge fund business, a fund of funds business, a liquidity business, and a merchant banking business, including the Firm's real estate, private equity and infrastructure units."
Morgan Stanley's money market mutual fund assets have been decimated over the past year, declining by $30.91 billion, or 39.9%, due to institutional outflows and the retail brokerages shift to "bankerage", or FDIC-insured sweep products. The company's combined retail and institutional money fund assets rank 18th among the 83 managers tracked by Crane Data. Invesco's AIM money fund unit ranks 13th with $73.97 billion (up $9.66 billion, or 15.0%, over the past 12 months through Sept. 30, according to our Money Fund Intelligence XLS).
In other news, J.P. Morgan Securities' weekly "Short-Term Fixed Income" writes this week on money fund flows in "Leaking liquidity." The piece says, "While it is clear money has been leaking out the money funds, it's hardly been gushing. In fact, MMF AuM are basically back to where they were at the start of September 2008. We write about money flows frequently (most recently on October 10) and won't recap the gory details here, but we will reiterate a few key themes: Shareholders invest in money funds either for precautionary or for structural reasons.... Generally speaking, most institutional class shareholders are liquidity investors.... [and] Retail class shareholders tend to be less risk averse and more willing to shift into other asset classes."
On bank deposits, JPM's Alex Roever and Cie-Jae Brown write, "[I]t's not at all clear that a large percentage of cash currently invested in money funds is destined to migrate into equity or bond markets, even with money fund yields hovering near zero. There is reason to believe that most of the institutional shares and a significant portion of the retail shares are sticky.... [T]he evidence suggests the leakage will be split between banks and the markets. That US banks have gained over $500bn in deposits since September 2008 should not be surprising given the extraordinary support provided to them by the government during that time. What is more surprising is that they have gained as much as that while trying to pass the increased cost of deposit insurance on to many depositors."
