While the majority of Prime to Government money fund conversions have already occurred, we saw another chunk of assets shift yesterday, and we continue to see a series of minor name and lineup changes as we approach the home-stretch of MMF Reform implementation. Among the most recent switches, Deutsche converted a slew of funds from Prime to Govt. Just the past two days, 23 funds, totaling $28.4 billion, converted from Prime to Government on April 29 and May 2. With these changes, $242.1 billion has now already shifted from Prime to Govt, 83.6% of the $289.7 billion slated to convert by October 14. We also learned that BNY Mellon is converting its BNY Mellon Prime MMF to the BNY Mellon Government MMF, and that Dreyfus changed the names <b:>`_of several of its funds. We review the latest changes and tweaks below, and also excerpt from a recent piece by `TCW's Michael Pak on "Money Market Reform."
The biggest portion of the new changes come from Deutsche, which converted 8 funds on May 2, a total of $18.8 billion. Specifically, Deutsche converted the $2.1 billion Cash Management to Govt Cash Mgmt, the $1.0 billion Cash Reserves and $575 million Cash Reserves Prime Series to Cash Reserves Govt Series, the $245 million Cash Reserves Prime Series Inst to Cash Reserves Govt Series Inst, the $14.2 billion Money Market Series Inst to Govt Money Market Series, the $241 million ProFund VP MMF to ProFund VP Govt MMF, and the $331 million Money Market ProFund and $148 million Money Market VIP to Govt Money Market VIP.
Other funds converting at April month-end include: the $662 million Invesco VI MMF to Invesco VI Govt MMF, the $780 million SunAmerica MMF to SunAmerica Govt MMF, and the $2.4 billion Oppenheimer Money Fund/VA to Oppenheimer Govt MMF/VA; the $129 million Putnam VT MMF to Putnam VT Govt MMF; the $139 million Federated Prime Money Fund II to Federated Government Money Fund II; the $1.3 billion GuideStone MMF; the $456 million Columbia Variable Cash Mgmt Fund to Columbia Variable Govt MMF; the $228 million Transamerica MMF to Transamerica Govt MMF; the $984 million Voya Liquid Assets Portfolio to Voya Government Liquid Assets Portfolio; the $246 million Voya Money market Fund to Voya Government MMF, and the $549 million Voya Money Market Portfolio to Voya Government MMP; the $757 million Lincoln LVIP MMF to Lincoln LVIP Government MMF; and the $441 million MassMutual Premier MMF to MassMutual Premier US Govt MMF.
Among new conversions, the $341 million BNY Mellon Money Market Fund just became BNY Mellon Government Money Market Fund. The SEC filing explains, "At a special meeting of shareholders of BNY Mellon Money Market Fund held on April 11, 2016, the fund's shareholders approved a proposal to change one of the fund's Fundamental Policies, which will enable the fund to change its investment policy so that the fund may invest at least 99.5% of its total assets in securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, repurchase agreements collateralized solely by cash and/or government securities, and cash and comply with the definition of "government money market fund." The changes described below will take effect on or about May 1. As of the Effective Date, the fund's name will change to: BNY Mellon Government Money Market Fund."
A separate filing adds, "As of the Effective Date, the following will replace the information in the section entitled "Fund Summary -- BNY Mellon Money Market Fund -- Principal Investment Strategy" in the prospectus: The fund is a "government money market fund." As a money market fund, the fund is subject to the maturity, quality, liquidity, and diversification requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended, which are designed to help money market funds maintain a stable share price of $1.00. As a government money market fund, the fund normally invests at least 99.5% of its total assets in securities issued or guaranteed as to principal and interest by the U.S. government or its agencies or instrumentalities, repurchase agreements collateralized solely by cash and/or government securities, and cash."
Another fund, the $822 million BNY Mellon National Municipal MMF, will qualify as Retail, according to a filing. Also on May 1, Dreyfus/BNY Mellon converted the $171 million Dreyfus Variable Inv Fund MMP to the Dreyfus Variable Inv Govt Fund MMP.
Dreyfus has also changed the names of several funds. The Dreyfus General Treasury Prime MMF changed its name to the Dreyfus General Treasury Securities MMF, according to a Prospectus supplement. And, Dreyfus Institutional Preferred Treasury MMF is changed its name to the Dreyfus Institutional Preferred Treasury Securities Money Market Fund, states another filing. Furthermore, Dreyfus Govt Prime Cash is now Dreyfus Govt Securities Cash, Dreyfus Treasury Prime Cash Mg is now Dreyfus Treasury Securities Cash Mg, and Dreyfus Inst Treasury Prm Cash Adv is now Dreyfus Inst Treasury Securities Cash Adv.
In addition, Janus filed with the SEC <i:https://www.sec.gov/Archives/edgar/data/277751/000119312516540227/d173764d497.htm>`_to state that its `Janus Government Money market Fund will comply with the new definition of a Government fund. The filing explains, "At a meeting held on March 10, 2016, the Board of Trustees of the Fund approved the designation of the Fund as a "government money market fund." Under the Reform Rules, a government money market fund is defined as a money market fund that invests at least 99.5% of its total assets in cash, U.S. Government securities, and/or repurchase agreements that are collateralized fully (i.e., collateralized by cash and/or government securities)."
Also, the Janus Money Market Fund was officially designated as a Retail fund. The filing states, "At a meeting held on March 10, 2016, the Trustees approved the designation of the Fund as a "retail money market fund," effective on October 14, 2016. Under the Reform Rules, a retail money market fund is defined as a money market fund that has policies and procedures reasonably designed to limit all beneficial owners of the fund to natural persons, which means that a retail money market fund's shares can be held only by individual investors."
In other news, TCW Senior VP of Fixed Income Michael Pak wrote on MM Reform recently. He explains, "With the compliance date for institutional prime money market funds only six months away, we have already started to observe a reallocation of assets within the industry and a changing supply mix in the short-term markets. During 2015 large fund families began converting their prime funds to government-only status in anticipation of the upcoming reform measures.... Although we have seen planned conversions of funds from prime to government status, we have not yet witnessed meaningful shareholder redemptions but expect these to pick up starting 2Q16."
Pak explains, "As funds are reallocated into Treasury and government-only funds, we have naturally seen a large pick-up in demand for Treasury bills as well as agency discount notes and repo collateralized by government securities. Although there was initially concern about a shortage of Treasury bills and repo (due to shrinking dealer balance sheets), two factors have allayed investor concerns for now. First, Treasury bill supply has increased meaningfully over the last six months and we expect it to remain high given Treasury's stated desire to maintain a higher running cash balance, increase bill issuance in lieu of nominals/TIPS, and increase bills as a percent of outstanding debt. Second, the Fed's reverse repo program should also provide ample Treasury collateral."
He adds, "While it is difficult to predict exactly how investors will react to upcoming reform, we broadly expect them to consider one of three options. First, investors may reallocate money to high-quality short-term bond funds although they are not a perfect substitute. Second, investors may elect to manage their short-term investments themselves although this is not always feasible given the operational issues involved. Third, some investors may elect to stay in institutional prime funds if they view the interest differential between prime and government funds to be attractive enough. Since 1995, the average spread between prime/Treasury and prime/government funds has averaged 26 and 12 bps while current spreads to both are 15 bps. Investor surveys indicate that to remain in a prime fund, many would need to see a prime to government spread over 30 bps suggesting further spread widening over the next few months."
Pak concludes, "So while there are plenty of unknowns as to how investors (and issuers) will ultimately respond to money market reform, one thing is certain: change is coming to the industry.... Evaluating the tradeoffs between liquidity, yield and quality in this asset class will be more important than in the past given upcoming stricter regulations."
