Morgan Stanley Investment Management released a document entitled, "European Money Market Fund Reform Transition Plan Announcement." It states, "Morgan Stanley is pleased to announce our anticipated money market fund (MMF) product range in response to the new European Union (EU) MMF regulations. Our New product lineup has been designed to offer our clients: Seamless transition to the new regulatory regime; Comprehensive product range within three currencies; Consistent intra-daily liquidity; Continued operational simplicity; Provisional conversion date targeted for the fourth quarter of 2018." We review their update, and we also summarize Crane Data's latest MFI International statistics and Portfolio Holdings, below.
MSIM explains, "After carefully taking into consideration client feedback, our product lineup will include constant net asset (CNAV) funds, low volatility net asset value (LVNAV) funds, and variable net asset value (VNAV) funds. Please note that the planned line up set out in the below table is subject to regulatory and board approval and may change in response to client demand. The lineup will be as follows."
Their "Planned MMF Product Spectrum" table shows: an existing "USD CNAV Fund" will convert to "USD LVNAV;" the existing "USD CNAV Treasury Fund" will convert to a "USD Public Debt CNAV;" their existing "Euro CNAV Fund" will convert to a "EUR VNAV (short-term);" and, an existing "GBP CNAV Fund" will convert to a "GBP LVNAV." MSIM's "Proposed New Funds" include: a USD VNAV (short-term), a USD VNAV (standard), a EUR LVNAV (subject to a positive net yield environment), a EUR VNAV (standard), and a GBP VNAV (short-term).
Morgan Stanley's update tells us, "There has been much discussion by the regulatory authorities about the reverse distribution mechanism (RDM) which is currently utilised by EUR CNAV funds to reflect the net negative yield that the funds generate. This mechanism has previously allowed euro-denominated MMFs to continue to transact at a constant EUR 1.00 unit price despite the negative interest rate environment. At the time of writing, it appears likely that the regulators will not allow RDM to be utilised post reform, making LVNAV and Public Debt CNAV structures for EUR MMFs unfeasible as long as the net negative interest rate environment for EUR persists. As a result, we are converting our existing CNAV EUR Fund to a short-term VNAV EUR fund."
It continues, "We intend to have a LVNAV EUR fund offering in our prospectus in readiness for when returns become positive. Additionally, in the current negative yield environment we will offer only an accumulating share class for the VNAV structure. Once the yield turns positive, we will offer both a distributing and accumulating share class for the LVNAV and VNAV structures."
The piece asks, "What can I expect around and after the implementation date?" Morgan Stanley writes, "If you are an existing investor in the Morgan Stanley Liquidity Funds, you will be automatically converted to the new structures referenced above. Investors will be asked to vote on updates to the Funds' articles of incorporation. We anticipate a smooth and seamless transition to the new fund structures. However, your ongoing user experience will be impacted depending on which fund(s) you're invested in."
Finally, they say, "For the USD and GBP LVNAV funds: There will be no change to the intraday liquidity provided; No change to the daily dealing process; No change to cutoff times; No expected change to the accounting classification of cash and cash equivalents (C&CE). For the EUR Short-Term VNAV fund: Intraday liquidity will be provided at two points; and, No expected change to the accounting classification of C&CE."
In other "offshore" money fund news, Crane Data's MFI International shows total assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Ireland or Luxemburg and denominated in USD, Euro and GBP (sterling), down slightly year-to-date in 2018. Year-to-date in 2018 (through 7/13/18), MFII assets are down $24 billion to $806 billion. U.S. Dollar (USD) funds (158) account for about half ($417 billion, or 41.7%) of the total, while Euro (EUR) money funds (98) total E91 billion and Pound Sterling (GBP) funds (110) total L214 billion. USD funds are down $9 billion, YTD, but were up $27B in 2017. Euro funds are down E7 billion YTD but were up E3B in 2017, while GBP funds are down L5B after rising L29B in 2017.
USD MMFs yield 1.83% (7-Day) on average (as of 7/13/18), up from 1.19% at the end of 2017 and 0.56% at the end of 2016. EUR MMFs yield -0.48 on average, up from -0.55% on 12/29/17 and -0.49% on 12/30/16, while GBP MMFs yield 0.40%, up from 0.24% at the end of 2017 and 0.19% at the end of 2016. (See our latest Money Fund Intelligence International for more on the "offshore" money fund marketplace.)
Crane's latest MFI International Money Fund Portfolio Holdings, with data (as of 6/30/18), shows that European-domiciled US Dollar MMFs, on average, consist of 19% in Treasury securities, 28% in Commercial Paper (CP), 22% in Certificates of Deposit (CDs), 14% in Other securities (primarily Time Deposits), 14% in Repurchase Agreements (Repo), and 3% in Government Agency securities. USD funds have on average 30.6% of their portfolios maturing Overnight, 11.7% maturing in 2-7 Days, 25.1% maturing in 8-30 Days, 11.2% maturing in 31-60 Days, 11.1% maturing in 61-90 Days, 8.5% maturing in 91-180 Days, and 1.7% maturing beyond 181 Days. USD holdings are affiliated with the following countries: US (28.7%), France (14.7%), Japan (9.9%), Canada (9.5%), United Kingdom (5.9%), Sweden (5.8%), Australia (4.6%), Germany (4.4%), The Netherlands (4.1%), China (2.9%), Singapore (2.6%), and Switzerland (1.5%).
The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $88.4 billion (19.3% of total assets), BNP Paribas with $25.8B (5.6%), Toronto-Dominion Bank with $12.7B (2.8%), Mitsubishi UFJ Financial Group Inc with $10.5B (2.3%), Mizuho Corporate Bank Ltd with $10.0B (2.2%), Wells Fargo with $9.3B (2.0%), ING Bank with $8.8B (1.9%), Australia & New Zealand Banking Group Ltd with $8.5B (1.9%), Societe Generale with $8.1B (1.8%), and Svenska Handelsbanken with $7.8B (1.7%).
Euro MMFs tracked by Crane Data contain, on average 47% in CP, 25% in CDs, 19% in Other (primarily Time Deposits), 8% in Repo, 0.4% in Treasuries and 0.8% in Agency securities. EUR funds have on average 22.6% of their portfolios maturing Overnight, 7.8% maturing in 2-7 Days, 14.7% maturing in 8-30 Days, 15.2% maturing in 31-60 Days, 20.5% maturing in 61-90 Days, 16.0% maturing in 91-180 Days and 3.3% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (26.1%), Japan (15.1%), The US (11.1%), The Netherlands (8.6%), Germany (7.4%), Sweden (6.4%), China (4.5%), Switzerland (4.1%), Belgium (3.8%), and The United Kingdom (3.5%).
The 10 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E4.4B (5.0%), Credit Agricole with E4.4B (4.9%), Mizuho Corporate Bank Ltd with E3.4B (3.8%), Credit Mutuel with E3.2B (3.5%), BPCE SA with E2.9B (3.3%), Svenska Handelsbanken with E2.9B (3.2%), ING Bank with E2.9B (3.2%), Rabobank with E2.8B (3.1%), Mitsubishi UFJ Financial Group Inc. with E2.6B (2.9%), and Procter & Gamble Co with E2.5B (2.8%).
The GBP funds tracked by MFI International contain, on average (as of 6/30/18): 40% in CDs, 26% in Other (Time Deposits), 22% in CP, 9% in Repo, 2% in Treasury, and 1% in Agency. Sterling funds have on average 22.9% of their portfolios maturing Overnight, 7.9% maturing in 2-7 Days, 15.1% maturing in 8-30 Days, 19.8% maturing in 31-60 Days, 18.3% maturing in 61-90 Days, 12.2% maturing in 91-180 Days, and 3.8% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (17.1%), Japan (15.5%), United Kingdom (13.7%), The Netherlands (9.5%), Canada (7.8%), the US (5.0%), Germany (5.0%), Australia (5.0%), Singapore (4.2%), and Sweden (4.1%).
The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L9.4B (5.6%), Sumitomo Mitsui Banking Co with L6.8B (4.1%), Toronto-Dominion Bank with L6.5B (3.9%), Credit Agricole with L4.9B (3.6%), ING Bank with E5.8B (3.5%), BNP Paribas with L5.8B (3.5%), BPCE SA with L5.6B (3.4%), Sumitomo Mitsui Banking Co with E5.4B (3.2%), Mitsubishi UFJ Financial Group Inc. with L5.3B (3.2%), and Rabobank with L5.1B (3.1%).
