As usual, money market funds were barely mentioned at the Investment Company Institute's General Membership Meeting, which took place last week in Washington, DC. (Crane Data exhibited, promoting its new bond fund information product line; watch more coverage in our Bond Fund Intelligence.) But there were a couple of sessions which briefly touched on MMFs, including SEC Chair Mary Jo White's keynote address, "The Future of Investment Company Regulation," and a panel on global investing. We review the GMM below, and we also revisit the "2016 Investment Company Fact Book," which was officially released at the show. (See our May 10 News, "ICI 2016 Fact Book Contains Wealth of Statistics, Reviews MMFs in '15.")
In her address at ICI's GMM, Chair White said, "When we first met in 2013, the industry was anxiously awaiting the SEC's actions on money market fund reform, the question of how to address potential systemic risk in the asset management industry was still nascent, and the Commission had not yet embarked on its latest effort to enhance its regulatory regime for asset management. Much has happened since, including the adoption of final rules for money market funds and a public statement by the Financial Stability Oversight Council (FSOC), issued last month, updating its review of the potential systemic risks in certain asset management products and activities. Today, the Financial Stability Board (FSB) is working toward issuing a second consultative draft analyzing similar issues."
She later commented, "In 2014, we fundamentally reformed the way that money market funds operate to both make our financial system more resilient and to enhance the transparency and fairness of these funds for America's investors. Then, building on a series of regulatory initiatives I announced in December 2014, last year we proposed rules to modernize reporting, to strengthen liquidity risk management requirements, and to address the use of derivatives by registered funds. And the staff has been closely focused on developing recommendations for transition plans and annual stress testing for certain funds and investment advisers."
Another ICI session, called "Investment Insights and Strategies," was moderated by CNBC's Tyler Mathisen and featured Krishna Memani, CIO, Oppenheimer Funds, and Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co. Memani said that he expects that "rates are going to remain low for the rest of my career," joking, "that means I'm either going to have a short career, or rates are going to remain low for a long time." He quipped, "What the world really wants more than anything else is a really good-yielding bond.... That would solve the world's problems." Schwab's Sonders added that she didn't think negative rates are working and are having the opposite effect of what the central banks intended <b:>`_. She expects to see a Fed rate hike this summer, either June or July.
During a session entitled, "The Evolving Global Asset Management Landscape," Frank Xiaoling Zhang of China Asset Management Co., said money market funds are booming and that the company has seen a dramatic increase in assets. He said, "It's the number one trend in China." Finally, in a session, "Facing the Future: Fresh Perspectives," panelists wondered if something as disruptive as the Yue Bao Chinese money fund, which is offered by Alipay, a unit of online retailer Alibaba, could happen in the US through an offering by say, Amazon or some other online retailer. The panelists didn't think it was out of the question, but said it would be a challenging endeavor for an outside entrant to take on. (They evidently weren't aware of the Paypal Money Fund, which didn't go anywhere a decade ago.)
In related news, we revisit the "ICI Fact Book's," focusing this time on its numerous "Data Tables" on "Money Market Mutual Funds, which start on page 206. ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution.
ICI's Table 36 on page 207, "Total Net Assets of Money Market Funds by Type of Funds," shows us that total net assets in taxable U.S. money market funds increased $30.1 billion to $2.754 trillion in 2015. At year-end 2015, $1.814 trillion (65.9%) was in taxable institutional money market funds, while $941.2 billion (34.2%) was in taxable retail money market funds. Breaking the numbers down by fund type, $1.273 billion (46.2%) were in prime funds, $1.226 trillion (44.5%) in government money market funds, and $254.9 billion (9.3%) in tax-exempt accounts.
ICI's Tables 40 and 41 on pages 211 and 212, "Asset Composition of Taxable Government Money Market Funds as a Percentage of Total Net Assets" and "Asset Composition of Taxable Prime Money Market Funds," show that of the $1.226 trillion in taxable government money market funds, 32.8% were in U.S. government agency issues, 32.2% were in Repurchase agreements, 17.2% were in U.S. Treasury bills, 17.2% were in Other Treasury securities, 0.4% was in "Other" assets, 0.1% was in corporate notes. The average maturity was 40 days.
Furthermore, it shows that of the $1.273 trillion in Prime funds at year-end 2015, 34.7% was in Certificates of Deposit, 23.4% was in commercial paper, 23.9% was in Repurchase agreements, 5.1% was in U.S. government agency issues, 2.8% was in Other Treasury securities, 3.0% was in Corporate notes, 2.0% percent in Bank notes, 1.9% in U.S. Treasury bills, 0.9% in Eurodollar CDs, and 2.3% in Other assets (which includes Banker's acceptances, municipal securities and cash reserves). The average maturity was 31 days.
ICI's annual statistics also show that there's been a steady decline in the number of money market mutual funds over the last 15 years. (See Table 35 on page 206.) In 2015, according to the Fact Book, there were a total of 481 money funds, down from 527 in 2014 and down from 1,039 in 2000. The number of share classes stood at 1,427 in 2015, down from 1,506 in 2014.
Also, Table 37 on page 208, "Net New Cash Flow of Money Market Funds by Type of Fund," show that there was $21.5 billion in net new cash flow into money market funds last year, the most since 2008. A closer look at the data shows $16.2 billion in net new cash flow into institutional funds and a $5.3 billion cash outflow from retail funds. There were also $40.8 billion in net inflows into Government funds, and $13.9 billion in net outflows from Prime funds. Paid dividends totaled $7.9 billion last year, up from $7.6 billion in 2014. This is down drastically from the peak of $127.9 billion in annual dividends in 2007. Also, there was $5.3 billion in reinvested dividends, up from $5.0 billion in 2012. (See Table 39 on page 210.)
Finally, Table 60 on page 231, "Total Net Assets of Mutual Funds Held in Individual and Institutional Accounts," shows that there was $1.048 trillion of assets with institutional investors and $1.707 in assets in Individual accounts in 2015. Table 62, "Total Net Assets of Institutional Investors in Taxable Money Market Funds by Type of Institution and Type of Fund," shows of the total of $1.005 trillion in taxable Institutional assets, $543.2 billion were held by business corporations, $334.3 billion were held by financial institutions, $77.2 billion were held by nonprofit organizations, and $50.5 billion were held by Other.
