The Investment Company Institute posted a brief entitled, "U.S. Prime Money Market Funds Remain Cautious with Respect to Eurozone Holdings" Friday, which analyzes Crane Data's latest Money Fund Portfolio Holdings series and shows a chart of French and Eurozone holdings of Prime money market funds over the past 14 months. ICI's Emily Gallagher and Chris Plantier write, "Over the summer, prime money market funds marginally increased their holdings of eurozone issuers: from 12.2 percent of assets in June (chart) to 14.0 percent of assets in August. This increase was driven primarily by a rise in holdings of French assets (up to 5.1 percent from 4.3 percent in June) and in holdings of German assets (up to 5.1 percent from 4.1 percent in June)."
ICI explains, "Since November 2011, this share of eurozone holdings has hovered in the 12 to 16 percent range -- roughly half of June 2011 levels -- and maturity of these holdings remains very short-term. For example, 84 percent of prime money market funds' French holdings matured in thirty days or less at end August 2012, compared to 37 percent in June 2011."
In other news, Fitch Ratings released an update entitled, "MMFs Focus on Repo Counterparty Credit, Less on Haircuts." It says, "Money market funds' (MMF) proportion of secured exposure in the form of repurchase agreements (repos) has been on a secular rise for almost a decade. Fitch Ratings attributes this trend to a number of factors, including a shift in demand for secured assets, broadening collateral practices, and the general evolution of the credit markets. In addition, amended rule 2a-7 has contributed to demand for repos by requiring taxable MMFs to hold at least 10% of their assets in daily liquid instruments (such as overnight repos)."
Fitch's Viktoria Baklanova and Kellie Geressy-Nilsen explain, "MMFs are focused on the counterparty credit quality first and foremost as the primary source of repayment. We believe regulatory requirements to maintain high quality short duration portfolios make it problematic for MMFs to take a possession of the long-term collateral securities in the event of dealer insolvency.... Given this general limitation of the collateral acceptance, the levels of the collateral haircut have only secondary significance for MMFs and, therefore, historically these levels have not been dynamically adjusted to market conditions. With that said, we believe collateral could still serve as another source of repayment in the event of a counterparty default."
They add, "When rating MMFs, we assume funds will be able to liquidate available U.S. government collateral without material loss of value. However, other types of collateral could become illiquid and cause funds to incur mark-to-market losses. Due to their greater volatility and lower liquidity especially at the times of market stress, nongovernment collateral securities are assigned greater haircuts, albeit not actively managed. In addition, our rating criteria limit rated MMF investments in repos backed by nongovernment securities to a maximum of 5% of the fund's assets, at par with other unsecured exposures. In essence, we attribute no value to such collateral."
Finally, Fitch writes, "Given the described limitations for MMFs in accepting repo collateral, in practice, MMFs are primarily focused on the quality of counterparty. We believe that transactions solely with counterparties rated at least 'A/F1' are consistent with 'AAAmmf' ratings. Lastly, we explain the lack of active haircut management on the part of MMFs by the prevailing short duration of the repo transactions which are generally unwound on daily basis. Thus MMFs constantly re-evaluate eligibility of the counterparty for the next-day trade and may opt out of transacting with a counterparty whose credit quality deteriorates."
On another note, a press release entitled, "Federated Investors' Mutual Funds Acquire Approximately $929 Million in Assets from Performance Funds Trust," says, "Federated Investors, Inc., one of the nation's largest investment managers, and Trustmark Corporation have reorganized approximately $929 million in assets of funds of Performance Funds Trust into Federated funds with similar investment objectives. The reorganizations comprised assets of four equity, two fixed income and two money market Performance Funds."
The release adds, "The reorganizations were approved by shareholders of the Performance Funds on Sept. 19, 2012. In connection with the reorganizations, Trustmark Investment Advisors, Inc., a wholly owned subsidiary of Trustmark National Bank, also sold certain assets relating to its management of the Performance Funds to Federated and certain Federated advisory subsidiaries. Following the consummation of these transactions, the Performance Funds will be terminated and, thereafter Trustmark Investment Advisors, Inc. will no longer serve as the sponsor and investment adviser to the Performance Funds."
It quotes Federated President & CEO J. Christopher Donahue, "Trustmark National Bank has been a valued client for many years, and we are pleased that they chose to work with us and transition these assets. Federated's wide range of investment options and our dedicated customer service can benefit Trustmark and its customers. Federated continues to seek alliance and acquisition opportunities in the United States and around the world."
