After a sharp drop last week, money fund assets jumped in the latest week, according to the Investment Company Institute's latest "Money Market Fund Assets" report. Total MMF assets retook the $2.8 trillion level and Retail MMFs broke back above $1.0 trillion. After rising by $113 billion, or 4.1%, in 2017, money fund assets have declined by $16 billion, or -0.5%, year-to-date in 2018 (through 2/7). Money funds fell by $43.2 billion in January -- they normally see outflows in the first month of the year -- but the gains, including a large retail jump, this week indicate funds are likely seeing some assets seeking shelter from market turmoil. (Note that money funds aren't used in brokerage "sweep" accounts like they once were; much of the sweep business has shifted to banks over the past decade.) We review ICI's latest asset totals below, and we also excerpt from the "Money Fund University Highlights" article in our February MFI.

ICI writes, "Total money market fund assets increased by $27.64 billion to $2.83 trillion for the week ended Wednesday, February 7, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $24.45 billion and prime funds increased by $2.67 billion. Tax-exempt money market funds increased by $520 million." Total Government MMF assets, which include Treasury funds too, stand at $2.228 trillion (78.8% of all money funds), while Total Prime MMFs stand at $460.5 billion (16.3%). Tax Exempt MMFs total $138.1 billion, or 4.9%.

They explain, "Assets of retail money market funds increased by $12.23 billion to $1.01 trillion. Among retail funds, government money market fund assets increased by $10.72 billion to $614.91 billion, prime money market fund assets increased by $1.26 billion to $263.64 billion, and tax-exempt fund assets increased by $255 million to $130.89 billion." Retail assets, which retook the $1 trillion level this week, account for over a third of total assets, or 35.7%, and Government Retail assets make up 60.9% of all Retail MMFs.

The release adds, "Assets of institutional money market funds increased by $15.41 billion to $1.82 trillion. Among institutional funds, government money market fund assets increased by $13.73 billion to $1.61 trillion, prime money market fund assets increased by $1.41 billion to $196.84 billion, and tax-exempt fund assets increased by $264 million to $7.17 billion." Institutional assets account for 64.3% of all MMF assets, with Government Inst assets making up 88.8% of all Institutional MMFs.

In other news, our February Money Fund Intelligence also discussed recent asset trends in our update, "MF University '18 Highlights Asset Recovery, Rising Rates." We quote from this update here: 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.

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."

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."

J.P. Morgan Securities' Teresa Ho presented the session, "Instruments of the Money Markets," and reviewed the size of money market supply. She commented, "At its peak in early 2008, total money market supply was about $11.5 trillion. If you exclude Treasuries, credit supply ... at its peak was $9.5 trillion. Today, [it's] now $6 trillion dollars, which means in the past 10 years credit supply has come down $3.5 trillion."

She says, "Money funds are by far the largest investor in the money markets. They also have seen a dramatic shift ... over the past three years as a result of money fund reform.... We've seen increased participation from other investors coming in to fill the gap that was left behind by prime money funds. These other investors include securities lenders, short term bond funds, separately managed accounts, even offshore money funds."

Finally, Ho adds, "Money market funds are here to stay.... As long as there's demand a for liquidity, as long as there's a mismatch between the timing of receipts and expenditures, and cash inflows and outflows, money markets will continue to exist. Yes, we've had a lot of regulations that’s changed the structure of the money markets but [they] has evolved, and the markets have adapted."

Note: Next year's Money Fund University is tentatively scheduled for Jan. 24-25, 2019 in Stamford, Conn. The MFU'18 Powerpoints, recordings & binder are available to attendees and MFI subscribers via our "Content Center" (at the bottom).

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