Between 2014, when money market reforms were passed, and 2016, when those reforms go into effect, 2015 was a year of transition. Money fund managers tweaked, revamped, and even scrapped their money fund lineups in preparation for 2016. It was also the year that the Federal Reserve finally raised interest rates; its first hike in almost 10 years. The long-awaited Fed move was a welcome relief for money fund managers, and investors, as we head into 2016. Below, we excerpt from 10 of the biggest stories of 2015. We selected the most popular, as well as those that represent some of the major trends of the past year. Crane Data's Top 10 Stories of 2015 include (in chronological order): "Goldman Govt Funds Comply Early; Invesco on Gates/Fees; Champ Exits" (1/22/15); "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt" (2/2/15); "SEC Posts 2014 Money Market Fund Reform Frequently Asked Questions" (4/23/15); "Federated Announces Retail Money Fund Plan, Streamlines MF Lineup" (6/5/15); "Managers Rolling with Reform Changes; Recap of Announcements So Far" (7/22/15); "Another Muni Money Fund Liquidates: A Recap of Recent Expirations" (8/17/15); "More Consolidation: Federated Buys Huntington; Am Century Goes Govt" (9/10/15); "SSgA Meets Challenges With New Money Funds, Enhanced Cash Options" (10/16/15); "BlackRock Taking Over BofA MMFs in One of Biggest Acquisitions Ever "(11/3/15); and, "Fed Hikes! Zero Yield Era Ends After 7 Years; MMF Yields Already Rising" (12/17/15). For more 2015 "News," see Crane Data's News Archives.
Our Jan. 22 News story, "Goldman Govt Funds Comply Early; Invesco on Gates/Fees; Champ Exits," is significant in that GSAM was the first MMF manager to announce reform-related changes. It says, "Although money market fund reforms don't kick in until October 2016, Goldman Sachs Asset Management announced this week that it intends to comply with the new rules for government money market funds now, nearly two years early. Goldman, the 3rd largest MMF manager in the world with $246.6B in global MMF assets (and 8th largest in the US), has already made changes to four of its MMFs to comply with the reforms. Their press release explains, "Though compliance with the new government money market fund definition is not required until October 2016, GSAM will comply with the new definition and its requirements early in response to investor demand to help ease the transition to new money market fund rules.""
February featured several large money managers following suit, including: Fidelity, the first major announcement, JP Morgan (2/23), and Federated (2/20). Our Feb. 2 News piece, entitled, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt," sent shockwaves through the industry as Fidelity announced the conversion billions of Prime assets to Government. It says, "The first major strategic shift following the Security and Exchange Commission's money market fund reform occurred Friday as the world's largest manager of money funds, Fidelity, announced major changes to its money market fund lineup. The shifts are to comply with pending reforms and to meet investor needs, with the most noteworthy being a move to convert some of its prime funds into government funds, including the largest money market fund in the world, the $114 billion Fidelity Cash Reserves. Nancy Prior, President of Fidelity's Fixed Income Division, tells Crane Data, "We're fully committed to the money market fund business.... We're going to have a robust product lineup covering all of the categories, including retail and institutional prime and municipal funds, along with government and Treasury funds, because we want to make sure we can meet all of our customers' investment needs. But we're making these changes now in response to the preferences that we've heard back from several segments of our customer base that would like to continue to have a money market fund with a stable NAV and without gates and fees.""
An April 23 article, "SEC Posts 2014 Money Market Fund Reform Frequently Asked Questions," sheds more light on reforms. It comments, "The Securities & Exchange Commission posted a document entitled, "2014 Money Market Fund Reform Frequently Asked Questions," we learned from Joan Swirsky of Stradley Ronon. The SEC also posted a "Valuation Guidance Frequently Asked Questions." The FAQ explains, "The staff of the Division of Investment Management has prepared the following responses to questions related to the money market fund reforms adopted in July 2014 and expects to update this document from time to time to include responses to additional questions. Any updates will include appropriate references to dates of new or modified questions and answers.... The 53 questions represent mostly minor technical and legal issues, and the only interesting sections (according to Crane Data) appear to be those addressing 60 day maturity funds (saying they can't say they seek to maintain a stable NAV) and FDIC insured deposits (saying these are not "government securities")."
A June 5 News article, "Federated Announces Retail Money Fund Plan, Streamlines MF Lineup," further details Federated's post-reform plans and represents similar announcements posted throughout 2015. It comments, "Federated Investors announced further changes to its money market fund lineup on Thursday, categorizing its retail funds and streamlining its product lineup. The press release titled, "Federated Investors, Inc. Announces Plans for Retail Money Market Funds," tells us that the company will merge 7 prime retail, government, and muni funds. The release says, "Federated Investors, Inc., one of the nation's largest investment managers, today announced further refinements to its plan to restructure the company's line of money market funds by delineating which money market funds will be classified as retail money market funds under the U.S. Securities and Exchange Commission's 2014 rules. In addition, the company announced a series of planned mergers with the aim of strengthening and streamlining its money market fund offerings. Federated expects to announce its institutional money market fund product line in the future."
Our July 22 article, "Managers Rolling with Reform Changes; Recap of Announcements So Far," summarized all the fund lineup changes to date. It says, "With the October 2016 implementation of the pending money fund reform rules a little over a year away, money market fund managers have been busy this year making plans to adapt to the new environment. We have reported extensively on the announcements that have come to our attention over the past six months, including the most recent, this week's announcement by Deutsche and filings from State Street. Of the 20 largest money market fund complexes, almost all have issued updates, including the 5 largest -- Fidelity, JP Morgan, BlackRock, Federated, and Vanguard.... Here is a recap of the changes announced so far, including links to our original "News" stories. Also of note, on July 10, we wrote, "OFR Sheds Light on Liquidity Funds, STIFs, Managed Accts in Form PF, which revealed the size of the private "Liquidity Funds" and SMA markets for the first time.
Fund liquidations were a major trend the past year, as we reported in our Aug. 17 News, "Another Muni Money Fund Liquidates: A Recap of Recent Expirations." It comments, "There has been a steady stream of money market fund liquidations over the past year, with many occurring in the Tax Exempt, or Municipal, sector. The latest of these comes from Western Asset Management, which recently merged its $570 million Western Asset Institutional AMT Free Municipal Money Market Fund into the $1.1 billion Western Asset Institutional Tax Free Reserves Fund.... According to the August Money Fund Intelligence XLS, there are currently 379 Tax-Exempt MMFs, down from 397 in August 2014. Below, we recap a number of recent and pending MMF liquidations." Also of note this past year, the meteoric growth of China as a MMF nation continued as we covered on Aug. 10, "China Surpasses France as 3rd Largest Money Fund Market: ICI World."
Another theme in 2015 was industry consolidation, as we reported in our Sept. 10 story, "More Consolidation: Federated Buys Huntington; Am Century Goes Govt." It says, "Federated Investors, the fourth largest money fund manager, announced that it is acquiring the money market fund assets of Huntington Asset Advisors, the 43rd largest money fund family with about $1.1 billion. This is the third money market fund acquisition that Federated has made this year, following the purchase of Reich & Tang's MMF business back in April, and the acquisition of the Touchstone Ohio Tax Free MMF in March. As many predicted, money market fund reforms are leading to consolidation within the money fund spaces as small firms exit the space rather than deal with the new regulations. Earlier this week we also reported on two other small shops getting out of the money fund business, Eaton Vance and Forward Funds. After these new departures, Crane Data will track 67 money fund managers, down from 75 in July 2014."
On October 16, we covered, "SSgA Meets Challenges With New Money Funds, Enhanced Cash Options," which reflects a move toward ultra-short bond funds. It reads, "State Street Global Advisors released a new white paper called, "Meeting the Challenges: Six Strategies for the New World of Cash," wherein they introduce 6 new funds -- 3 money market funds and 3 ultra short-term bond funds/enhanced cash funds –- and discuss how they meet the challenges of the changing landscape of cash investing. We first reported on the new offerings back in July in the story, "State Street Files New 60 Day MMF, Current Yield, Ultra Short Bond," based on the initial SEC filings. This new white paper elaborates on the launches and comments on SSgA's larger strategy as it readies for the implementation of money fund reform. The 3 new money funds are: State Street 60 Day Money Market, State Street Institutional Liquid Assets, and State Street Cash Reserves. The 3 new "non 2a-7" or bond funds include: State Street Ultra Short Term Bond, State Street Current Yield, and State Street Conservative Income. We also recap some of the other recent ultra short term bond fund launches below."
On Nov. 3, we wrote, "BlackRock Taking Over BofA MMFs in One of Biggest Acquisitions Ever," about the blockbuster deal. The article says, "In one of the largest acquisitions ever in the money market fund space, BlackRock announced that it was taking over management of BofA Global Capital's cash business. BofA Funds is the 14th largest manager of money market fund assets that we track with $48.3 billion -- and according to BlackRock's press release announcing the move, has $87 billion in total cash assets under management. Prior to this transaction, the largest money fund mergers in the past included both BlackRock's merger with Merrill Lynch Investment Management in 2006 and BlackRock's merger with Barclays Global Investors in 2009. When the BofA transaction is complete, BlackRock will become the second largest manager of money fund assets with about $370 billion in AUM, jumping ahead of now No. 2-ranked JP Morgan."
Finally, the year ended with a bang, as we reported in our Dec. 17 News, "Fed Hikes! Zero Yield Era Ends After 7 Years; MMF Yields Already Rising." It says, "The Federal Reserve raised interest rates yesterday for the first time in almost 10 years, lifting its Federal Funds rate off its zero to 0.25% range to a new 0.25%-0.50% range. (See the Fed's Statement here.) The historic move by the FOMC ends a seven-year yield drought for money funds -- the Fed Funds rate has been at virtually zero since December 2008. Money market fund yields should jump starting today; they've already moved higher in anticipation of the hike. Our Crane 100 Money Fund Index has increased from 0.03% at mid-year to 0.07% today. [Note: It is now up to 0.11%.] MMF yields should move higher by about 10 basis points over the next week and up to 25 bps by mid-January (though this will depend on how much of the hike is absorbed by the removal of fee waivers). In support of the Fed's move, the Federal Reserve Bank of New York announced that it was temporarily raising the cap on the Fed's Overnight Reverse Repo Program to $2 trillion.
On a final side note, we wrapped up 2015 with the Dec. 22 story, "More Funds Jump on Prime to Govt Conversion Bandwagon; Mergers,” which recaps the $262 billion in completed and pending Prime to Govt conversions. Of course, we'll continue to cover all the events impacting the money fund marketplace, so watch for our daily News and Link of the Day commentaries to continue in 2016. (Watch for our Bond Fund Intelligence News website to launch at some point in coming months too.) Thanks and Happy Holidays to our readers, subscribers and supporters; we wish you all the best in the coming year. Happy New Year!
