The December issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Thursday morning, features the articles: "A Decade Later: Subprime Crisis & StratCash, SIVs, LGIPs," which reviews the 10-year anniversary of the financial crisis and troubles with enhanced cash; "Vanguard's Justin Schwartz Talks Muni Money Markets," which interviews Vanguard's Head of Municipal Money Markets; and, "Signs of Life in Tax Exempt Money Fund Sector Too," which reviews the slow rebound and launches in the Muni MMF space. We've also updated our Money Fund Wisdom database with Nov. 30, 2017, statistics, and sent out our MFI XLS spreadsheet Thursday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our December Money Fund Portfolio Holdings are scheduled to ship Monday, December 11, and our December Bond Fund Intelligence is scheduled to go out Thursday, December 14.

MFI's "Decade After Subprime" article says, "In recent months, we've been marking the 10-year anniversary of the start of the Subprime Liquidity Crisis, which dramatically impacted the money markets and money fund business. While it started in August 2007, the crisis didn't really get serious for money funds until November/December 2007, when SIV bailouts, meltdowns of LGIPs and exploding enhanced cash funds appeared in quick succession. We look back at these tumultuous days of a decade ago, and review some of our coverage at the time. (​See our Nov. 29 News, "Another Look Back at Early Subprime Crisis 10 Years Ago: LGIPs, SIVs," and our Aug. 11 News, "10 Years Ago: Subprime Crisis Starts.")

It continues, "Ten years ago this weekend (on 12/8/07), we wrote the story, "More Enhanced Cash Troubles: Columbia StratCash Halts Redemptions," which told readers, "Market rumors swirled Friday that the largest entrant in the 'enhanced cash' space, Columbia's Strategic Cash had halted redemptions. Enhanced cash pools, or '3c-7' funds, are private placements available to only the largest qualified institutional investors.... Over half of the pool, $21 billion, has been separated into a 'StratCash 2' portfolio, perhaps signaling a very large 'in kind' separation.... StratCash has been gradually declined from $40 billion to $33 billion over the past several weeks. Columbia parent Bank of America reportedly set aside $300 million to support the pool previously.... StratCash becomes the latest enhanced cash product to retreat from the besieged sector."

MFI's latest Profile reads, "This month, MFI interviews Justin Schwartz, Head of Municipal Money Markets at the Vanguard Group. Vanguard is the 2nd largest manager of tax-exempt MMFs (and MMFs overall) with over $29.4 billion ($285.2B overall). Schwartz manages the $17.4 billion Vanguard Municipal Money Market Fund, the largest fund in the tax-exempt space. We discuss supply, credit, liquidity, and several other topics below."

We asked Schwartz to "Give us a little background." He responds, "Vanguard began running tax exempt money market funds in 1980 with the launch of the Vanguard Tax Exempt MMF. At the time we launched, interest rates were in the double digits so it was a much different environment than today. We followed up with the launch of our state funds; most of which [were added] in the late '80s, with our final product being launched in 1997. So we've been managing tax exempt money funds for coming up on four decades."

He continues, "In terms of my background, I joined the fixed income group of Vanguard in 2005 as a trader with our long-term bond funds. Subsequently, I joined the short-term municipal team in 2008, [which was] a challenging time to start a career in the money market space. But the lessons learned during the financial crisis are invaluable with regards to shaping my perspective on the proper ways to manage risk and liquidity in money market portfolios."

Schwartz adds, "I was promoted to fund manager in 2010 and most recently became head of the municipal short desk in 2016 following Pam Tynan's retirement. Along the way I've managed several of our state specific money funds. I currently manage our Vanguard Municipal Money Market and also Vanguard Short Term Tax Exempt Fund. My team consists of three portfolio managers and six traders. In addition to the money funds, we manage all the cash investments for our muni bond funds." (Watch for more excerpts from this "profile" later this month, or ask us to see the latest MFI.)

Our "Signs of Life in Tax Exempt" article says, "While they haven't seen the rebound that Prime money market funds have over the past year, Tax Exempt money market funds too are showing some signs of life after being left for dead following last year's money fund reforms. Year-to-date, Tax Exempt MMF assets have increased by $2.0 billion, or 1.5%, to $134.5 billion, and the number of funds appears to be stabilizing. Even the Tax Exempt Institutional sector, which was abandoned by all but 9 of the remaining 17 managers in the space, has seen some interest, as JPMorgan and Fidelity file to launch new funds here."

MFI quotes a recent, Ignites article entitled, "Green Shoots? Fidelity, JPMorgan Register Muni Money Funds," who writes, "Fidelity and JPMorgan each registered an institutional municipal money market fund in November, bucking the trend in recent years of liquidating such products or converting them to government or retail strategies. The plans to launch the products may indicate rekindled interest among institutional investors for municipal money funds, says Peter Crane, CEO of money fund tracking firm Crane Data. Clients of both firms presumably pressed the shops for the new products, says Crane."

They comment, "Fidelity, the largest manager of money funds, filed for the Fidelity SAI Municipal Money Market Fund, which will be offered 'exclusively to certain clients of the advisor or its affiliates,' according to the preliminary prospectus. Fidelity'Strategic Advisers Inc. unit oversees managed accounts.... Meanwhile, JPMorgan filed for an Institutional Tax-Free Money Market Fund. The preliminary prospectus is dated 2018, but does not include a specific launch date. The total expense ratio, after fee waivers and reimbursements, is 26 basis points. The investment minimum to establish an account is $5 million, the filing states."

Ignites adds, "The 2014 reforms, which required firms to classify funds as retail or institutional depending on their investor base, mandated that institutional prime and municipal funds adopt fluctuating net asset values and have the ability to impose liquidity fees and redemption gates. Many investors responded by yanking their money from institutional prime and municipal products and moving it to government ones, which were allowed to maintain a stable net asset value and don't operate under the specter of liquidity fees and redemption gates.... Firms that opted to offer institutional municipal money funds include BlackRock, Federated, Wells Fargo and Invesco."

Our December MFI XLS, with Nov. 30, 2017, data, shows total assets increased $46.4 billion in November to $2.988 trillion after decreasing $2.2 billion in October, increasing $32.0 billion in September and $68 billion in August, and decreasing $32.6 billion in July. Our broad Crane Money Fund Average 7-Day Yield was up 4 basis points to 0.75% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 3 bps to 0.93%.

On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 3 bps to 1.19% and the Crane 100 rose 3 bps to 1.21%. Charged Expenses averaged 0.45% and 0.28% (unchanged) for the Crane MFA and Crane 100, respectively. The average WAM (weighted average maturity) for the Crane MFA was 29 days (down one day from last month) and for the Crane 100 was 29 days (down one from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Email This Article

Use a comma or a semicolon to separate

captcha image