Crane Data has begun tracking Daily Liquid Assets (DLA) and Weekly Liquid Assets (WLA), adding the two statistics to our Money Fund Intelligence Daily product. DLA includes securities maturing in one day plus all Treasury securities, while WLA includes securities maturing within 7 days plus Treasury and Government discount securities. We added these to MFI Daily, our daily 8am e-mailed Excel file with assets, yields, dividends, Crane Indexes and daily commentary, late last week. The addition of DLA and WLA is in response to the SEC's 2014 Money Market Fund Reforms, which will require money fund providers to report such data on their websites starting in April 2016. A number of fund companies have already begun posting these statistics. (We also already track MNAVs, or market NAVs, on MFI Daily, which money fund managers will also be required to post as part of the new disclosure rules but many already post.) In other news, we report that Wells Fargo is rebranding its family of mutual funds by eliminating the "Advantage" moniker and we cite a new paper from Capital Advisors, below.
Crane Data President Peter Crane explains, "While all money funds don't have to disclose daily liquid assets and weekly liquid assets until April 2016, a number of fund companies have started posting this info. We decided to add these alongside our MNAV (market NAV) field in MFI Daily, since there are now enough of them to calculate averages and to monitor these metrics, which are crucial in monitoring whether a fund may be in danger of implementing an emergency gate or fee."
While less than half of the fund's that Crane Data tracks are currently posting these statistics (these include BlackRock, Goldman Sachs, JPMorgan, and Morgan Stanley), we now have a decent sample and are able to produce some averages in our Crane indexes. The DLA for all funds that Crane Data tracks is 44.3 while the WLA is 72.2. For the Crane Money Fund Average, which includes just taxable money funds, the DLA is 46.7 while the WLA is 69.7. The DLA for the Crane 100 is 38.8, while the WLA is 56.5. (Note: We've been publishing %M1 and %M2-7, percent of securities maturing in one day and in 2-7 days, as well as percentage in Treasury and percentage in Government Agencies, in our monthly MFI XLS. But these don't match the SEC's Daily and Weekly liquidity formula exactly and are only updated monthly with a lag.)
As a backgrounder on why we are tracking DLAs and WLAs, we cite the SEC's final rules on website disclosure. (See our Aug. 6, 2014 News, "SEC Money Fund Reform Disclosure Requirements Not Quite Kitchen Sink.") The final rules read: "We are adopting, as proposed, amendments to rule 2a-7 that require money market funds to disclose prominently on their websites the percentage of the fund's total assets that are invested in daily and weekly liquid assets, as of the end of each business day during the preceding six months.... We believe that daily disclosure of weekly liquid assets and daily liquid assets ultimately benefits investors and could both increase stability and decrease risk in the financial markets. [W]hile there is a potential for heavy redemptions in response to a decrease in liquidity, the increased transparency could reduce run risk in cases where it shows investors that a fund has sufficient liquidity to withstand market stress events."
Also, in other news, Wells Fargo sent out a note to investors last week that it would be rebranding by eliminating the "Advantage" name from its funds. Wells Fargo spokesman John Roehm tells us, "On Friday, we notified investors that, effective December 15, we will be simplifying and shortening our product names by removing the word 'Advantage.' Because fund names are often abbreviated in database listings, longer fund names can make it difficult for investors to identify a specific fund. We believe this change will help alleviate confusion and will allow us to more clearly communicate our product names." The company has a wide array of money market funds which will be adopting this new name come December 15.
Finally, a new Capital Advisors paper, "Staying Afloat in a Floating Net Asset Value Money Market Fund," addresses the liquidity challenges for institutional prime money market funds after October 2016. The introduction says, "It is fall of 2016. The dust has settled on money market fund reform. Institutional prime money market funds have adopted floating net asset values (NAVs) with optional liquidity fees and gates provisions. Institutional investors demanding NAV and liquidity certainty have eschewed the product for other liquidity options. Will floating NAV funds retain a critical mass to stay afloat as a viable cash management tool? How will fund dynamics be different? For remaining shareholders, what are the liquidity challenges?"
It continues, "Assuming that fund sponsors are able to successfully accommodate outflows in the implementation phase, we think that the first few months after October 2016 may be less hectic than one might fear. There are reasons to remain positive on floating NAV funds as viable cash management tools.... With the SEC allowing fund advisors to "top off" on fund NAVs on Day One, one should expect the funds to start with a rounded $1.0000 NAV from the start. For the first few months at least, fund managers likely will manage their portfolios conservatively to keep the NAVs as close to $1.0000 for as long as possible.... Despite the spotlight on potential liquidity fees and gates, the likelihood of such events occurring is quite low. For fees and gates to be triggered, the so-called seven-day liquidity level must be at 10% or less, or about one third of 30% as prescribed by the SEC in 2010. Even at this level, a fund's board of directors still has the discretion to withhold such measure if it is not in the best interest of all shareholders."
Capital Advisors' piece concludes, "In light of the challenges discussed thus far, we could foresee a portfolio approach with liquidity instruments that complement each other. The portfolio may consist of stable NAV government funds, floating NAV prime funds, and direct purchases of government and other highly liquid securities. Government fund shares may accommodate unforeseen intraday liquidity needs. Prime fund shares may provide extra yield potential and function as next-day source of liquidity. A laddered portfolio of government and other liquid securities may provide back-up liquidity through maturities or open market sales in the unlikely event of liquidity becoming inaccessible in prime funds.... This diversified liquidity approach may be the best compromise since many things remain unknown, including how other institutional shareholders will perceive and accept the reformed prime product, how effective liquidity monitoring tools will be, and whether intra-day liquidity is possible. While we think there may be room and potential for prime funds to belong in cash management accounts, managing liquidity risk through this period of its metamorphosis and beyond demands a lot of attention and caution from all stakeholders."
