The February issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Wednesday morning, features the articles: "Battle to Repeal Floating NAV Regs Not Over; H.R. 2319 Lives," which reviews the legislative effort to undo the floating NAV reforms; "Morgan Stanley's McMullen & Kolk on Global, Ultrashort," which interviews MSIM's Fred McMullen and Jonas Kolk; and, "MF University '18 Highlights Asset Recovery, Rising Rates," which reviews highlights from our recent "basic training" conference. We've also updated our Money Fund Wisdom database with Jan. 31, 2018, statistics, and also sent out our MFI XLS spreadsheet Wednesday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our February Money Fund Portfolio Holdings are scheduled to ship on Friday, February 10, and our February Bond Fund Intelligence is scheduled to go out Wednesday, February 15.
MFI's "Battle to Repeal" article says, "While recent press coverage indicates that it has stalled, the push continues to pass H.R. 2319, a bill that would bring back the $1.00 'stable' share price for Prime Institutional and Muni Inst MMFs. The most recent skirmish took place on the Editorial page of The Wall Street Journal. Bill sponsor Rep. Keith Rothfus (R., Pa.) wrote a letter to the editor in response to a recent editorial."
It continues, "His missive, entitled, "Keep Money-Market Funds Safe and Sensible," says, "The SEC unfairly picked winners and losers at the expense of state and local governments, affordable housing, schools, hospitals and Main Street businesses. Your editorial "The Next Money-Fund Bailout" (Jan. 29) omits key facts about my legislation as well as the effects of the SEC's 2014 rule affecting money-market funds. I agree that investors should be aware of the risks ... and that the federal government should not bail out failing businesses. That's why my bill prohibits federal bailouts and requires that this be disclosed."
MFI's latest Profile reads, "This month, MFI interviews Morgan Stanley Investment Management Managing Directors and Co-Heads of Global Liquidity Fred McMullen and Jonas Kolk. MSIM is the 5th largest manager of global institutional money funds, overseeing $169.0 billion. We discuss the latest issues involving U.S. money market funds, and also talk about pending European money fund reforms, the state of conservative ultra-short bond funds, and a number of other issues in the cash investment space. Our Q&A follows."
MFI says, "Tell us about your history." McMullen tells us, "The genesis of the business was designed for our brokerage and private wealth platforms. In the early 2000s, we made a push into the institutional funds market, both in the U.S. and offshore. Then for our ultrashort fund, which is approaching its two-year anniversary, that history coincides with the recent regulatory changes here in the U.S.... I joined Morgan Stanley in 2010 and took over the distribution and product functions in 2011. I've been in the industry approximately 30 years."
Kolk comments, "We launched our first money fund in 1975, so it was one of the first funds in existence in the industry.... I joined 14 years ago [and] was hired as someone with experience on the institutional side of portfolio management."
MFI asks, "What's your biggest priority now? McMullen says, "We have a lineup of U.S. institutional funds and retail funds in both the taxable and tax-exempt spaces, and we also have our offshore funds across three major currencies - U.S. dollar, euro and sterling. The money market funds are complemented by our Ultra Short Income Bond Fund [where] the AUM is a little over $7 billion.... We also manage liquidity separate accounts."
He adds, "I would say that EU money market fund reform is right on top of our priorities list, and where we're spending a lot of time engaging clients and firming up our product line decisions. On the offshore side, we've experienced a lot of growth.... [We're now] number six in the offshore league tables, so we want to preserve this part of the franchise as much as we can. In terms of our response to the EU regulations, we're finalizing what our product lineup will look like." (Watch for more excerpts from this "profile" later this month, or ask us to see the latest MFI.)
Our "Money Fund University" article says, "Crane Data recently hosted its 8th annual Money Fund University, which took place Jan. 18-19 in Boston. The "basic training" event, targeted at those new to the money fund industry, featured primers on interest rates, money market securities, the Federal Reserve, ratings, portfolio management, and money fund regulations. The big themes this year were the reality of rising rates, the gradual recovery in assets, and the focus on repatriation and pending regulatory reform in Europe."
It continues, "As always, host Peter Crane kicked off the event with a session called, "History and Current State of Money Funds," commenting, "As rates went to zero, assets went down by about 15% per year, then you see this 6-7 year period where assets were basically flat. It certainly was a minor miracle that money funds were able to keep the $2.6 trillion-2.7 trillion with virtually zero rates. Fund companies were waiving most of their fees ... to keep yields positive and that crushed the profits of money fund providers.... [But] they were able to soldier on and the money stayed put, which was a minor miracle."
The recap adds, "He continued, "[Then] we saw an uptick in 2017, when assets increased by about 4%. This was the first bump up we've seen in almost 10 years, and 2018 looks even better, as yields are breaking 1.0%. There is a little bit of interest again in cash, so you came at a good time. You survived the 'death watch' and presumably things are brighter than they've been in a decade in this space."
Our February MFI XLS, with Jan. 31, 2018, data, shows total assets decreased $54.3 billion in January to $2.988 trillion, after increasing $57.9 billion in December, $46.4 billion in November, and decreasing $2.2 billion in October. Our broad Crane Money Fund Average 7-Day Yield was up 6 basis points to 0.98% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 5 bps to 1.17%.
On a Gross Yield Basis (7-Day) (before expenses were taken out), the Crane MFA rose 8 bps to 1.43% and the Crane 100 rose 7 bps to 1.45%. Charged Expenses averaged 0.45% and 0.28% (up one bps and unchanged, respectively) for the Crane MFA and Crane 100. 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 28 days (down two from last month). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
