The SEC released it latest quarterly "Private Funds Statistics" report recently, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows a jump in overall Liquidity fund assets in the latest quarter to $558 billion. A previous press release, entitled, "SEC Staff Supplements Quarterly Private Funds Statistics" tells us, "The U.S. Securities and Exchange Commission staff ... published a suite of new data and analyses of private fund statistics and trends. The Private Funds Statistics ... offers investors and other market participants valuable insights by aggregating data reported by private fund advisers on Form ADV and Form PF. New analyses include ... characteristics of private liquidity funds." We review the latest SEC report, as well a money fund article by ignites, below.

The SEC's "Introduction" explains, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from First Calendar Quarter 2015 through Third Calendar Quarter 2017 as reported by Form PF filers." (Note: Crane Data believes the liquidity funds are primarily securities lending reinvestment pools and other short-term investment funds; these are not the new breed of "3c-7" private liquidity funds being marketed by Federated, JPMorgan and a few others.)

The tables in the SEC's "Private Funds Statistics: Third Calendar Quarter 2017," the most recent data available, now show 115 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisors with over $1 billion total in cash), down 1 fund from the prior quarter and up 12 from a year ago. (There are 69 Liquidity Funds and 46 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 38 Liquidity Fund advisers and 23 Section 3 Liquidity Fund advisers, or 61 advisers in total, one fewer than last quarter (and five more than a year ago).

The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $558 billion, up $11 billion from Q2'17 and up $41 billion from a year ago (Q3'16). Of this total, $280 billion is in normal Liquidity Funds while $278 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $561 billion, up $12 billion from Q2'17 and up $20 billion from a year ago (Q3'16). Of this total, $282 billion is in normal Liquidity Funds while $279 billion is in Section 3 (large manager) Liquidity Funds.

A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $83 billion is held by Private Funds, $55 billion is held by Unknown Non-U.S. Investors, $51 billion is held by Other, $24 billion is held by SEC-Registered Investment Companies, $10 billion is held by Insurance Companies, $5 billion is held by Pension Plans, and $4 billion is held by Non-U.S. Individuals. State/Muni Govt Pension Plans held $1 billion, while Non-Profits held $2 billion.

The tables also show that 79.1% of Section 3 Liquidity Funds have a liquidation period of one day, $261 billion of these funds may suspend redemptions, and $227 billion of these funds may have gates (out of a total of $279 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 31 days (38 days when weighted by assets), WALs are a short 62 days (71 days when asset-weighted), and 7-Day Gross Yields average about 1.02% (1.12% asset-weighted). Daily Liquid Assets average about 44% while Weekly Liquid Assets average about 60%. Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (45.7%) are fully compliant with Rule 2a-7.

In other news, ignites wrote earlier this week, "With Highest Yields in Years, Money Funds Poised for Big Asset Bump." The mutual fund news source tells us, "Money market fund yields have reached their highest levels in nearly a decade, with those of some institutional prime funds recently cracking 2%. And with the Federal Reserve expected to raise short-term interest rates two or three more times in 2018, money fund yields could climb as high as 3% by year-end."

They explain, "Higher rates are 'the topic du jour' in the money fund industry, says Tim Huyck, CIO of money markets at Fidelity. The Fed has raised rates six times since late 2015, he says, and yields have begun to rise steadily after years of being stuck at as little as 1 basis point."

The ignites piece continues, "Yet money funds have bled about $40 billion in assets year-to-date and stood at $2.81 trillion as of May 9, according to Investment Company Institute data. But market participants and observers attribute the outflows to seasonal factors such as tax payments. Net redemptions will to swing to net sales in the second half of the year, and inflows will accelerate, they say."

They quote our Peter Crane, president and CEO of Crane Data, "It a little surprising that [money funds] haven't gotten more attention yet." But, he says, "`the whole shift back to cash, the story of higher yields, is in the very early innings." The piece adds, "If rates continue to rise and there's more turmoil in the markets, this year's money fund inflows will surpass those of last year, says Crane."

The article states, "With three rate increases in 2017, money funds pulled in $107 billion in net flows, ICI data shows. Money funds had hovered around $2.7 trillion in total assets since 2011, but as of the end of last year, they had inched up to $2.84 trillion. That is still a far cry from 2008, when the products represented $3.8 trillion in assets, according to the ICI."

Ignites also comments, "Money fund assets grew at nearly triple the rate of bank deposit accounts for the year ended March 1, says Federated Investors' Debbie Cunningham, CIO of global money markets, citing Federal Reserve data.... Like Crane, Cunningham says she anticipates this year's money fund sales to outpace those of 2017."

Finally, they add, "Money funds' higher yields have led to 'a pause' in fund liquidations and companies exiting the business, says Crane. There were 1,026 money funds as of Jan. 2, according to iMoneyNet data, and 1,035, as of this week. Those figures include all share classes of each product."

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