The August issue of Crane Data's Money Fund Intelligence was sent out to subscribers Friday morning. The latest edition of our flagship monthly newsletter features the articles: "Going Govt II: More Managers Plan Shifts to 'Govie' Funds," which discusses moves by BlackRock, Goldman, Deutsche and others to change Prime funds into Government funds; "PIMCO's Jerome Schneider Looks at 2a-7 and Beyond," where the head of PIMCO money market funds talks about the "new paradigm" for cash investors; and "MMFs in Disguise? New Ultra-Shorts from SSgA, Others," which reports on the launch of several new money fund-like ultra short bond funds. We have also updated our Money Fund Wisdom database query system with July 31, 2015, performance statistics, and sent out our MFI XLS spreadsheet this a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our July Money Fund Portfolio Holdings are scheduled to ship Tuesday, August 11, and our August Bond Fund Intelligence is scheduled to go out on Friday, August 14. In other news, the SEC updated its "2014 Money Market Fund Reform Frequently Asked Questions" document.
The lead article in MFI says, "As we move into the second half of 2015, money market fund managers are beginning to fine tune their product lineups to prepare for the new rules in 2016. In July, we saw BlackRock, SSgA, Goldman, and Deutsche further evolve with specific and significant fund changes. These latest moves include (in total) another potentially sizable shift of assets (roughly $50 billion) from Prime to Government. We review the latest batch of announcements and filings below."
It continues, "The most notable new changes, perhaps, came from BlackRock. In April, BlackRock announced that it was keeping the TempFund as Prime Institutional and subject to the floating NAV, converting TempCash to a short maturity FNAV fund, and converting several Prime Retail funds to Government funds. In a series of late July filings, they've now outlined which funds are being converted. Specifically, 3 former Merrill Lynch prime retail money funds -- BIF Money Fund (which used to be CMA Money Fund, at one point the largest money fund in the world), Ready Assets Prime Fund, and Retirement Reserves Money Fund -- will be converted to Government funds. Also, BlackRock's FFI Premier Institutional, FFI Institutional Fund, and FFI Select Institutional will be converted from Prime Institutional to Government. All totaled, about $18 billion will be changing from Prime to Government funds. BlackRock also announced that it is liquidating 3 Muni money funds, BlackRock New Jersey MM Portfolio, BlackRock Virginia MMP, and BlackRock North Carolina MMP."
In our "profile" this month, we interview Jerome Schneider, Managing Director and Lead Portfolio Manager for Short Term Strategies at PIMCO. It reads, "Schneider oversees not only money market funds, but all short duration strategies. In that role, Schneider and his team have positioned PIMCO to compete in an evolving marketplace, "focusing on actively managed strategies which offer liquidity management, capital preservation, and income." As he told us, investors are now dealing with a "different set of cards" that will change the game going forward. Schneider discusses those changes and PIMCO’s strategy of creating opportunities in 2a-7 and beyond."
One of the questions asks: "Q: What changes do you see in the marketplace? Schneider: Obviously, the shift from Prime to Government is going to be more of a strategic shift for many investors who want to maintain that $1 par NAV and avoid fees and gates. We have money funds that are going to remain available and we have the capacity to continue to grow those funds. But over the next 2 years or so, we think we will see an evolution out of the liquidity management paradigm that we've had for the past 40 years into a new one that is continuing to be defined. It's not completely formed, and in fact it's in the embryonic stages. As things change -- such as regulations, banks, intermediaries, monetary policies, and even monetary tools such as the reverse repo facility -- all of these things are going to impact how we think about capital preservation and liquidity going forward. Investors are going to have to understand these changes and rely on partners who can help them. Most importantly, we suggest that investors should not limit themselves to the historic frameworks that the industry has used for the past forty years to manage liquidity. Liquidity management will evolve and investors will benefit if they are flexible enough to adapt to these changes."
The third article says, "Money market fund managers are not just revamping their money funds, they are also looking to supplement their lineups with ultra-short bond funds or enhanced cash portfolios. Some of these new funds, for the most part, look and act like money market funds with the potential for slightly higher yields. But they aren't subject to 2a-7 regulations, in particular the pending 4 decimal point pricing and the emergency gates and fees. At a time when new regulations, as well as supply concerns, could impact both Prime and Government money market funds, managers are getting prepared to capture possible outflows by offering alternatives just outside the MMF space."
It adds, "State Street Global Advisors is the latest firm to jump into the ultra-short bond fund space. SSgA filed with the Securities & Exchange Commission to launch 3 new short duration bond funds -- State Street Ultra Short Term Bond Fund, State Street Current Yield Fund, and State Street Conservative Income Fund. The Ultra Short Term Bond Fund's average effective duration is expected to be 1 year or less, said the SEC filing."
The issue also has a brief entitled, "Moody's: MFs to Gain $5B. It says, "In a new report entitled, "`Rising Rates to Unleash $5 billion for US Money Fund Sponsors," Moody's Investors Service says U.S. money market fund managers can expect to double MMF revenues in the near future as the industry is poised to recover some $5 billion in fees <b:>`_."
Crane Data's July MFI XLS, with July 31, 2015, data shows total assets rising by $52.4 billion in July, after rising $15.5 billion in June. YTD, MMF assets are down by $62.4 billion, or 2.4% (through 7/31/15). Our broad Crane Money Fund Average 7-Day Yield and 30-Day Yield remained at 0.02%, while our Crane 100 Money Fund Index (the 100 largest taxable funds) ticked up 1 basis point to 0.04% (7-day and 30-day). On a Gross Yield Basis (before expenses were taken out), funds averaged 0.16% (Crane MFA, up 0.01% from last month) and 0.20% (Crane 100, up 0.01% from last month). Charged Expenses averaged 0.14% and 0.16% (unchanged) for the two main taxable averages. The average WAMs for the Crane MFA and the Crane 100 were 36 and 39 days, respectively, unchanged from last month. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
In other news, the SEC released an updated version of its "Money Market Fund Reform Frequently Asked Questions. The updated FAQ includes new information on a number of topics, including Form N-CR, compliance dates for Form-PF, on Retail investors and beneficial ownership, and suspending redemptions, among others. One of the changes is on Question 16 relates to determining beneficial ownership for the purposes of qualifying as a retail money market fund.
The addendum says, "Rule 13d-3 also treats a person as a beneficial owner based on the person having sole or shared voting power over securities. Voting power may be unrelated to the power to redeem securities, and therefore would not be significant when determining beneficial ownership of a retail money market fund. Accordingly, in the staff's view and notwithstanding Rule 13d-3, policies and procedures would be deemed "reasonably designed to limit all beneficial owners of the fund to natural persons" even if they do not use voting power as a basis for identifying beneficial owners of the fund. The staff believes that such policies and procedures may also permit institutional decision makers to share investment power with a natural person. For example, accounts managed by an institutional decision maker on behalf of one or more natural persons may qualify to invest in a retail money market fund, provided that such natural persons have sole or shared investment power over the shares as defined in rule 13d-3."
