Charles Schwab Investment Management sent out a letter to clients and shareholders Friday morning announcing changes to its money market fund lineup. The big change is that Schwab, which has mostly retail assets to begin with, will convert its Institutional shares to retail so that it's offering are entirely retail; it will also convert one of its small Prime funds, Money Market Portfolio, to Government. Schwab is the 7th largest money fund manager in the US with $160.1 billion in assets. The three funds that are changing -- Schwab Value Advantage Money Fund, Institutional Shares; Schwab Value Advantage Money Fund, Institutional Prime Shares; and Schwab Municipal Money Fund, Institutional Shares -- represent about $3.2 billion. (See also the press release, "Charles Schwab Investment Management Changes Money Market Fund Line-up," and see our previous News, "Schwab Shifting MMF Sweeps to Bank.")
The letter says, "Last year, the U.S. Securities and Exchange Commission (SEC) implemented a series of changes to the regulations that govern money market funds (MMFs). The purpose of these changes is two-fold -- to increase fund liquidity and protect investors. Money market funds represent the largest pool of client assets managed by Charles Schwab Investment Management, and we remain committed to offering and managing money market funds."
It continues, "Because our money market funds primarily serve the needs of retail investors, most of our clients will not be meaningfully impacted by the new regulations. We will continue to offer a robust product suite that includes prime, municipal, and government money market funds. Transparency and clarity are important to us and our shareholders, and we'd like to provide you with some background on what is changing for this category of product and how."
Schwab tells us, "The changes affect money market funds in three ways: New categories and eligibility requirements for retail money market funds. The SEC has created a new definition of "retail money market funds" with restrictions on the type of client who can invest in them. New requirements for fund valuation. Retail money market funds will continue to be permitted to transact at a constant net asset value (NAV) of $1.00 per share, but institutional money market funds must convert to a variable NAV. New methods to manage fund redemptions. Money market funds will now be able to deploy new tools to stem heavy redemptions during times of market stress and tight liquidity, giving them the ability to impose liquidity fees and/or suspend redemptions (also known as redemption gates)."
Further, they say, "While our investing discipline remains unchanged, we are announcing a number of changes to our product suite in order to satisfy these new requirements. Going forward, Schwab will categorize its money market funds as follows: All Schwab Prime and Municipal Money Market Funds plan to qualify as "retail money market funds" by October 14, 2016, will continue to seek to maintain a constant NAV of $1.00 per share and will only be available to "natural persons" which includes individuals, certain trusts, and certain retirement accounts), and participant-directed defined contribution plan accounts. These funds will be subject to potential liquidity fees and redemption gates in periods of exceptional market volatility."
The letter adds, "Effective October 9, 2015, three Schwab Money Market Fund share classes are renamed. The Schwab Value Advantage Money Fund - Institutional Shares will be renamed Schwab Value Advantage Money Fund - Premier Shares. Schwab Value Advantage Money Fund - Institutional Prime Shares will be renamed Schwab Value Advantage Money Fund - Ultra Shares. Schwab Municipal Money Fund - Institutional Shares will be renamed Schwab Municipal Money Fund - Premier Shares."
It continues, "All Schwab Government Money Funds intend to qualify as "government money market funds" as of April 14, 2016 according to the SEC's new definition of such funds, and will continue to seek to maintain a constant NAV of $1.00 per share. The Schwab Money Market Portfolio also intends to convert to a "government money market fund" as of April 14, 2016, and will continue to seek to maintain a constant NAV of $1.00 per share. None of these funds will be adopting a policy to implement liquidity fees or redemption gates at this time."
