Bloomberg on Muni MMF Woes
Bloomberg writes, "Fed Rate Increase Too Late for BlackRock, Alpine Muni Cash Funds." It says, "Whether the Federal Reserve's first interest-rate increase since 2006 comes this week or not, it won't be soon enough for Alpine Funds' municipal money-market fund. Alpine Woods Capital Investors closed the $120 million fund in April after more than 12 years of operations, joining seven other tax-exempt money-market funds that have liquidated in the last 12 months, according to data compiled by Bloomberg. That number is set to grow. BlackRock Inc. in July said it would close its New Jersey, North Carolina and Virginia money funds by the end of year, leaving it with 15. "It's tough times in the muni market," said Peter Crane, president of Westborough, Massachusetts-based Crane Data, a money-fund researcher. "Rates are so low that nobody cares about the taxes on them, because there's no income to be taxed." Caught in a vice of the Fed's zero interest-rate policy and the cost of implementing new government regulations, fund companies are culling their offerings through liquidations and mergers. Municipal money-fund assets have plunged by half since peaking in August 2008, to $250 billion. The falloff has far outpaced taxable money-market funds, which dipped 20 percent in that period, to $2.4 trillion as of Sept. 10, according to the Investment Company Institute." The piece adds, "Tax-exempt money-market funds, which invest in high-rated, short-term debt and are treated like cash by investors, may still recover as rates rise. Balances in tax-exempt funds more than doubled from the early 1980s through 2008, with faster inflows when the Fed funds rate was rising than it was declining, according to Moody's Investors Service. Alpine Woods, based in Purchase, New York, said its fund wasn't big enough to justify additional expenses resulting from U.S. Securities and Exchange Commission rules that take effect in October 2016 aimed at preventing a run on the funds. Costs for lawyers, technology, disclosure and stress testing are going up, fund managers said.... "Clearly there are some organizations where the cash product is essential to their product line-up and they have the scale to weather the storm," said Steven Shachat, who managed the Alpine fund. Alpine still has a $980 million "ultra short" municipal fund, whose holdings have an average maturity of about 90 days. Some bigger fund companies are also trimming product lines. In July, Western Asset Management, a Legg Mason Inc. affiliate, merged its $540 million Institutional AMT Free fund into the $1.3 billion Institutional Tax Free Reserves Fund, citing similar objectives and investment strategies."
