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 $579 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 below, and we also give an update on HSBC's latest European MMF Reform plans.
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 2016 through Fourth 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: Fourth Calendar Quarter 2017," the most recent data available, now show 118 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisors with over $1 billion total in cash), up 3 funds from the prior quarter and up 5 from a year ago. (There are 70 Liquidity Funds and 48 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 39 Liquidity Fund advisers and 25 Section 3 Liquidity Fund advisers, or 64 advisers in total, three more than last quarter (and one more than a year ago).
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $579 billion, up $21 billion from Q3'17 and up $14 billion from a year ago (Q4'16). Of this total, $291 billion is in normal Liquidity Funds while $288 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 $580 billion, up $19 billion from Q3'17 and up $13 billion from a year ago (Q4'16). Of this total, $291 billion is in normal Liquidity Funds while $289 billion is in Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $96 billion is held by Private Funds, $55 billion is held by Other, $53 billion is held by Unknown Non-U.S. Investors, $23 billion is held by SEC-Registered Investment Companies, $9 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 80.5% of Section 3 Liquidity Funds have a liquidation period of one day, $273 billion of these funds may suspend redemptions, and $237 billion of these funds may have gates (out of a total of $289 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 32 days (36 days when weighted by assets), WALs are a short 55 days (65 days when asset-weighted), and 7-Day Gross Yields average about 1.15% (1.30% asset-weighted).
Daily Liquid Assets average about 45% (48% asset-weighted) while Weekly Liquid Assets average about 60% (61% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (45.8%) are fully compliant with Rule 2a-7. (See also our March 15, 2017 News, "CAG's Pan on Pros and Cons of Private Liquidity Funds, SEC Paper, Stats.")
In other news, HSBC Global Asset Management announced its "European Money Market Fund Reform Transition Plan Announcement" a few months ago, but we just learned of it recently. It says, "After five years of discussion, design and preparation the new Money Market regulation was passed by the European Union in July 2017. This document provides an outline of the changes to the HSBC Global Liquidity Funds range, conversion timeline and anticipated next steps." The document explains, "This resulted in the formation of three new fund structures: Low Volatility Net Asset Value – LVNAV, Public Debt Constant Net Asset Value – CNAV, and Variable Net Asset Value – VNAV."
HSBC explains, "HSBC Global Asset Management has continually been committed to providing thought leadership and engaging with clients, industry bodies, regulators and governments across the globe on the reforms. Our responses to date have been designed to be fully compliant well ahead of the mandatory deadline date of 21 January 2019, and to keep our clients informed of our plans. Below is an outline of the changes to the fund range, conversion timeline and anticipated next steps."
Their "Funds Conversion" table tells us, "HSBC Global Liquidity Funds (GLF) will convert its existing CNAV prime funds to the LVNAV prime fund structure (see table below) and intends to launch CNAV public debt funds, initially focused on US Treasury." HSBC will convert existing USD, EUR, GBP, CAD, and AUD CNAV Prime funds to LVNAV Prime Funds, and plans to launch a USD Treasury CNAV Public Debt Fund in 2018. They also list several, "Potential Additional Funds Subject to Client Demand, including, USD Government, EUR, and GBP CNAV Public Debt Funds, USD, EUR, GBP, CAD, and AUD VNAV Prime Funds, and USD, EUR, and GBP VNAV Ultra Short Debt Funds. (They note that separately managed accounts are already available.)
The update continues, "During the month of November 2018, well in advance of the 21 January 2019 compliance deadline and year-end, HSBC Global Liquidity Funds is planning to transition its full spectrum of CNAV Prime Funds denominated in USD, EUR, GBP, CAD and AUD to the new Low Volatility NAV Prime Funds. Prior to November, clients will be required to vote on the changes which will be communicated by HSBC Global Asset Management well ahead of time."
It adds, "Following questions raised by the European Commission earlier in the year, the EUR Money Market CNAV fund industry continues to engage with the regulators on the question of share cancellation (or 'Reverse Distribution Mechanism'). HSBC Global Asset Management remains highly involved with regulators and industry bodies and is fully committed to provide the best solutions for our clients. We will keep you informed should anything change as a result of the share cancellation debate. We will keep you up to date with our plans as we progress through the implementation project as we understand the importance of giving you sufficient time to implement any changes on your side."
