Money fund assets jumped for the 5th week in a row and Prime MMFs rose for the 10th week straight, we learned from the Investment Company Institute's" latest report. Government money funds continued their rebound, also jumping for the fifth week in a row, after they showed outflows during most of the first half of the year. Prime MMFs rose for the 16th week in the past 18 (up $44.5, or 11.2%), and showed their biggest inflows of 2017 They've now increased by $63.4 billion, or 16.8%, year-to-date. We review the latest asset flows below, and we also look at a recent comment letter from EFAMA on ESMA's Consultation Paper on pending EU Money Market Fund Regulations.
ICI writes, "Total money market fund assets increased by $29.65 billion to $2.74 trillion for the week ended Wednesday, August 23, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $23.89 billion and prime funds increased by $6.75 billion. Tax-exempt money market funds decreased by $998 million." Total Government MMF assets, which include Treasury funds too, stand at $2.165 trillion (79.1% of all money funds), while Total Prime MMFs stand at $440.9 billion (16.1%). Tax Exempt MMFs total $129.7 billion, or 4.7%.
They explain, "Assets of retail money market funds increased by $289 million to $969.40 billion. Among retail funds, government money market fund assets decreased by $391 million to $587.67 billion, prime money market fund assets increased by $1.44 billion to $257.96 billion, and tax-exempt fund assets decreased by $761 million to $123.77 billion." Retail assets account for over a third of total assets, or 35.4%, and Government Retail assets make up 60.6% of all Retail MMFs.
ICI's release adds, "Assets of institutional money market funds increased by $29.36 billion to $1.77 trillion. Among institutional funds, government money market fund assets increased by $24.28 billion to $1.58 trillion, prime money market fund assets increased by $5.31 billion to $182.96 billion, and tax-exempt fund assets decreased by $237 million to $5.96 billion." Institutional assets account for 64.6% of all MMF assets, with Government Inst assets making up 89.3% of all Institutional MMFs.
It explains, "ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website." Note: Crane Data also publishes a daily money fund assets series via our Money Fund Intelligence Daily product, and a monthly asset series via our MFI XLS.
In other news, yesterday we reviewed some more comment letters on the European Securities and Markets Authority's recent technical paper, which discuss issues with implementing pending European MMF Reforms." Today, we excerpt from another letter, this one from EFAMA, the European trade group for mutual funds. (See our May 30 News, "`ESMA Publishes Consultation on European MMF Regs; Fitch on European.")
EFAMA writes, "The European Fund and Asset Management Federation (EFAMA) is pleased to have the opportunity to answer to ESMA's consultation paper “on draft technical advice, implementing technical standards, and guidelines under the MMFR. EFAMA is the representative association for the European investment management industry through its 28 member associations and 62 corporate members. We represent EUR 23 trillion in assets under management of which EUR 14.1 trillion managed by 58,400 investment funds at end 2016. 30,600 of these funds were UCITS (Undertakings for Collective Investments in Transferable Securities) funds, with the remaining 27,800 funds being AIFs (Alternative Investment Funds)."
They explain, "We summarise below our general views on different topics covered in ESMA's consultation as well as our remarks on the dates of application of the reporting template and the guidelines. At the outset, we would like to stress that the new requirements should not go beyond what is specified in the MMF Regulation. We also consider that, references to either banking regulation or US regulation should be avoided, given the differences between the business model and market practices of banks and MMFs and between US and European Union MMFs."
On "Reverse Repos," EFAMA tells us, "We welcome ESMA's choice to consider the collateral as a second step defence. The first level of risk should indeed be linked to the quality of the counterparty.... We recommend that there is flexibility given to the manager to determine the haircut policy taking into account the credit quality of the counterparty and the quality/maturity of the collateral received. This is particularly important in order to ensure that MMMFs are not placed at a competitive disadvantage when engaging in reverse repo transactions. The flexibility left to MMF managers to negotiate an appropriate level of haircut would not prevent some managers who would like to apply recognised standardisation from doing so."
Regarding ESMA's "Reporting Template," they write, "The reporting template should be finalized on the basis of what is specifically asked for in the MMFR. From this perspective, we consider that the reporting template proposed by ESMA is too much based on the AIFMD Annex IV reporting template, which has been developed to capture a very broad universe of funds. This approach would impose new onerous obligations to most MMFs because the vast majority of MMFs are UCITS. Furthermore, as noted by ESMA, the list of information to be provided by managers that is explicitly mentioned in the MMF Regulation differs, to a large extent, from the one in the AIMFD. More generally, fund managers should ideally be allowed to report information on their funds on the basis of a single template."
EFAMA comments on "Credit quality assessment," "The technical advice should not be prescriptive but be "principle-based". This would allow MMF managers to comply with the requirements by adapting their existing procedures rather than by developing new processes from scratch. In addition, small asset managers should benefit from more flexible rules in line with the principle of proportionality.... Along the same line, we consider that the advice should not introduce an obligation to develop a credit quality assessment based on a "scale of credit rating"."
Finally, they say about "Stress Testing," "EFAMA believes that the stress test tool should be applied with the aim of checking potential vulnerabilities of a fund, in a context that would limit governance and IT costs. The key variables that are relevant are spreads, redemptions, liquidity and interest rates. For this reason, we believe that the guidelines should be developed for illustrative purpose and not to impose "minimum requirements". More generally, we strongly recommend to adopt a principle-based approach for stress testing that considers only relevant factors for MMFs and takes into consideration existing practices on stress testing where these are already in place."
