The August issue of our flagship Money Fund Intelligence newsletter, was sent to subscribers Tuesday morning, features the articles: "The Big Shrink: Prime Assets, Spreads; Latest Changes," which looks at Prime fund asset, yield and maturity declines; "New Lion King: Santero In at Dreyfus; Cardona Retiring," which profiles Mark Santero and Charlie Cardona of Dreyfus; and "AFP Liquidity Survey Shows Deposits Peaked, MMFs Up," which reviews last month's survey of corporate treasurers. We have updated our Money Fund Wisdom database query system with July 31, 2016, performance statistics, and also sent out our MFI XLS spreadsheet Friday morning. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our August Money Fund Portfolio Holdings are scheduled to ship Tuesday, August 9, and our August Bond Fund Intelligence is scheduled to go out Friday, August 12.
MFI's lead "Big Shrink" article says, "Money funds jumped back into the mainstream press over the past week as Prime assets fell below $1 trillion for the first time in almost 20 years, and as a spike in LIBOR rates caught the attention of the broader financial markets. (See the recent News on www.cranedata.com for links to the host of articles.) Liquidations, Prime to Government conversions and tweaks, changes and filings continued in July and show no signs of abating. We review these below, and we discuss the continued flight from Prime and shortening of portfolios, building of liquidity and shrinkage of spreads."
The article adds, "Of course, one of the biggest variables influencing the amount of additional money (beyond the $450 billion already gone) that will leave Prime funds in the next 2-3 months is the spread between Prime and Government (or Treasury) money funds. While money funds had been seeing stable spreads of about 15 basis points between Prime Institutional MMFs on average and Treasury Inst MMFs, these have quietly started shrinking."
Our latest fund interview reads, "This month, MFI interviews Mark Santero, C.E.O of the Dreyfus Corporation, and Charlie Cardona, President of Dreyfus Corporation and C.E.O of BNY Mellon's Cash Investment Strategies division. Cardona will be retiring at the end of the year, and Santero recently became the leader of the cash business at Dreyfus. We wanted to discuss their transition, their latest plans and strategies and some lessons learned from Cardona's extensive history in the money fund business. Our interview follows."
MFI asks about the latest changes. Santero says, "My role as the C.E.O of Dreyfus is really to run the Dreyfus mutual fund family, which includes the cash funds.... Dreyfus is a great brand; it's been in existence for 60-plus years. It's something which in a former life was a formidable competitor of mine when I spent over 11 years at AIM Management Group.... When we look at Dreyfus, we look at the cash business as a true growth opportunity, given the resources that we have within the bank to support it and the types of clients we have at the bank. The synergies [with the bank] are very strong.... We have some very distinct and unique boutiques, and we're looking to grow that business."
The article on the "AFP's Survey" explains, "The Association for Financial Professionals released its "2016 Liquidity Survey" last month, and the new report showed a tiny decrease in bank deposits and increase in money fund holdings. It also shows that a majority of respondents will make changes to how they invest in Prime money market funds. Specifically, it says 62% plan to make changes in how they invest in prime funds and that 37% of that number will move to Govt funds or Bank products. However, safety of principal remains the top priority among investment objectives, increasing to 68% in 2016 from 65% last year."
In a sidebar, we discuss, "Worldwide MMF Assets." This brief says, "The Investment Company Institute's latest "Worldwide Mutual Fund Assets and Flows" data shows that total global money fund assets inched lower by $9 billion, or 0.2%, to $5.063 trillion in Q1 2016. China, Ireland, and Luxembourg suffered the biggest declines, while France, Korea, Brazil, and the U.S. saw gains." We also do a sidebar on "MMF Earnings Up," which says, "Charles Schwab & Co. and Federated Investors both reported higher profits due to lower fee waivers and increased money market fund revenues." Finally, as we do every month, we review all the important "Money Fund News."
Our August MFI XLS, with July 31, 2016, data, shows total assets increased $7.8 billion in July to $2.620 trillion after decreasing $13.8 billion in June, $9.9 billon in May, and $42.0 billion in April. Our broad Crane Money Fund Average 7-Day Yield decreased one basis point to 0.12% for the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) also decreased 1 basis point to 0.23% (7-day).
On a Gross Yield Basis (before expenses were taken out), the Crane MFA was unchanged at 0.44% and the Crane 100 was down 1 bps to 0.48%. Charged Expenses averaged 0.33% and 0.25% for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 31 days (down 1 day from last month) and for the Crane 100 was 31 days (down 3 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
In other news, The Wall Street Journal wrote again about money market funds in "A $500 Billion Stampede in Money Markets Even Before New Rules Hit." The article says, "The last big post-Lehman regulatory change is reverberating across the financial system, potentially squeezing short-term lending for businesses and local governments. The rules haven't taken effect yet but are already upending the $2.7 trillion money-market industry, causing nearly $500 billion to move into, out of and among these funds, which are used by investors to stash their cash and by borrowers for short-term liquidity."
It continues, "Already, more than $420 billion has left prime money-market funds in the past year, pulling assets below $1 trillion for the first time since 1999, according to the Investment Company Institute, the industry's trade association. The money has flowed into government money-market funds, which have grown from $991 billion to $1.5 trillion. Funds holding federal government debt are the big winners because under the new rules they can still promise that investments won’t lose money. More money chasing government bonds isn't what the world needs right now."
Finally, the Journal says, "The flip side is that $420 billion that used to be loaned to companies, mostly in the form of commercial paper, has disappeared from the system. That has forced companies to find other ways to borrow -- either by taking loans from banks or selling longer-term bonds—both of which can be more costly. Peter Crane of Crane Data, which tracks money-market funds, says another $500 billion could leave prime funds."
