Add T. Rowe Price to the list of money market fund complexes that are converting Prime fund assets to Government fund assets. However, bucking recent trends, the 21st largest money fund manager with $14.6 billion in assets (all classified as "Retail" by Crane Data), is also launching a new Prime Institutional fund, according to a story published in Ignites, "T. Rowe Tinkers with Money Fund Lineup." T. Rowe officials say they want to be prepared for growth in the new money market fund landscape. The ignites article says, "T. Rowe Price will convert its largest money market fund -- the $6.4 billion Prime Reserve -- to a government fund and launch a new prime institutional fund as part of its moves to comply with the SEC's 2014 reforms, the firm announced last week." In other news, we also report on ICI's and "J.P. Morgan Securities' latest "Money Fund Holdings" reports.

The ignites piece tells us, "T. Rowe, like other money fund managers, says it wants to be sure to have a product line in place that will satisfy its current clients -- and ideally attract new ones. The changes to the firm's money fund lineup are primarily aimed at better serving existing investors, says Joe Lynagh, portfolio manager for T. Rowe's money funds. There is a "real possibility," however, of getting new shareholders, Lynagh adds. "The whole industry is being repainted ... so you want to be in a position to serve shareholders who are being shaken out because of these changes," he says.

The article explains, "T. Rowe has a total of about $36 billion in money fund assets overall. In addition to the eight money funds, it also manages $21 billion in two internal, cash sweep funds and $17 million in cash strategies distributed through variable annuity portfolios offered by insurance companies, according to a firm spokesman." It continues, "The firm currently offers a Treasury fund, two prime funds and five tax-exempt funds." (Note: These funds include: T Rowe Price Prime Reserves (PRRXX, $6.4B), T Rowe Price Summit Cash Res (TSCXX, $4.7B), T Rowe Price US Treasury Money (PRTXX, $2.1B), T Rowe Price CA Tax-Free MF (PCTXX, $68M), T Rowe Price MD Tax-Free MF (TMDXX, $135M), T Rowe Price NY Tax-Free MF (NYTXX, $73M), T Rowe Price Summit Muni MF (TRSXX, $197M), and T Rowe Price Tax-Exempt MF (PTEXX, $998M).)

Further, ignites explains, "T. Rowe has determined that investors in the funds are predominantly retail, but some institutional investors do hold shares. The new prime institutional fund ensures those investors have a "home for those assets," Lynagh says. "So launching a fund specifically tailored to institutional investors gives T. Rowe Price entry into a space we've never been in before." Or, as Peter Crane, CEO of Crane Data, says, "If you don't have a bucket for some investors, you have to make one."

The article adds, "An institutional prime fund also sets the firm up for investors who desire greater yield than they would get from government funds, despite the possibility that gates and fees could be imposed on prime institutional products. "As we go forward in time, if there is a significant yield differential, investors may decide that they are not as concerned about liquidity fees and gates," Lynagh says, adding he does not expect a big yield differential until after 2016."

In other news, the Investment Company Institute released its latest "Money Market Fund Holdings" summary (with data as of July 31, 2015), which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See also Crane Data's August 12 "News", "MF Port Holdings: Repo Plunges; Time Deposits, CDs, CP Jump in July.")

ICI's "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 26.1% as of July 31, up from 26.4% on May 31. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 21.8% (vs. 22.5% last month) and "Other treasury securities," which added 4.4% (down from 3.9% last month). Prime funds' Weekly liquid assets totaled 38.8% (vs. 39.6% last month), which was made up of "All securities maturing within 5 days" (32.9% vs. 33.7% in June), Other treasury securities (4.3% vs. 3.6% in June), and Other agency securities (1.6% vs. 2.3% a month ago).

The ICI holdings report says Government Money Market Funds' Daily liquid assets totaled 62.0% as of July 31 vs. 59.5% in June. All securities maturing within 1 day totaled 26.5% vs. 23.6% last month. Other treasury securities added 35.5% (vs. 35.9% in June). Weekly liquid assets totaled 82.9% (vs. 82.2%), which was comprised of All securities maturing within 5 days (39.8% vs. 40.1%), Other treasury securities (33.4% vs. 33.7%), and Other agency securities (9.8% vs. 8.4%).

ICI's "Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 42.0% in the Americas (vs. 50.6% last month), 19.2% in Asia Pacific (vs. 20.5%), 38.6% in Europe (vs. 28.6%), and 0.3% in Other and Supranational (vs. 0.4% last month). Government Money Market Funds held 84.3% in the Americas (vs. 93.9% last month), 0.6% in Asia Pacific (vs. 0.2%), 15.0% in Europe (vs. 5.9%), and 0.1% in Supranational (vs. 0.1%).

The table, "Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs at 37 days as of July 31, same as last month. WALs were at 73 days, same as last month. Government MMFs' WAMs was at 40 days, up from 30 days last month, while WALs were at 76 days, up from 75 days.

JP Morgan Securities also commented on WAMs in its "Prime MMF Holdings Update for July" last week. JPM writes, "With a Fed tightening cycle on the horizon, prime MMFs continued to maintain short portfolios during July. Fund managers continued to prepare for a September liftoff by keeping WAMs incredibly short. At 33 days, prime fund WAMs are currently near their all-time lows. Indeed, holdings data shows that prime funds have been focused on building liquidity year-over- year, with more holdings in the 0-30d maturity bucket and less beyond 30d. As the beginning of the tightening cycle draws nearer, we expect WAMs to come in even further, with issuance concentrated in short tenors for fixed rate paper."

On holdings, they write, "Prime fund exposures to banks snapped back post quarter-end, increasing by $147bn. The increase was due in large part to rebounds in time deposit and CD holdings, which rose by $77bn and $28bn respectively.... While prime funds increased their exposures to banks, they decreased their usage of the Fed RRP facility. Usage of the Fed RRP fell by $139bn month-over-month, as banks tapped the short-term wholesale funding markets after scaling back for quarter-end.... As another means to protect against a Fed move, prime funds have become larger buyers of floating rate product over the past few months.... Buying floaters from these high quality issuers has allowed funds to get invested while protecting against a rate hike all while minimizing their WAMs."

Finally, JPM commented on the four large money market fund complexes that initiated MMF lineup changes in July -- Deutsche, State Street, Goldman Sachs, and BlackRock. They say, "With these latest announcements, about $160bn currently invested in prime MMFs is now scheduled to be converted into government fund status. Of this amount, approximately $120bn is invested with banks. As this paper begins to roll off, other funds potentially announce similar prime to government fund conversions, and MMF reform-related outflows begin to occur, bank borrowing rates may begin to be pressured higher. Consequently, LIBOR/OIS spreads could be biased wider towards the end of the year and into 2016. However, since the timing of these factors remains unclear, it is hard to tell exactly how much widening could occur. Also, banks may choose not to replace this funding, abating such a widening bias."

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