The September issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Monday morning, features the articles: "Ten Years After: Reserve Fund ‘Breaks the Buck’," which discusses the anniversary of the Financial Crisis; "New IMMFA Chair Hochfeld on European MMF Reforms," which profiles Morgan Stanley's Kim Hochfeld; and, "DWS Launches ESG Liquidity, Socially Responsible MMF," which reviews a new fund conversion from DWS. We've also updated our Money Fund Wisdom database with Aug. 31, 2018, statistics, and sent out our MFI XLS spreadsheet Monday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our September Money Fund Portfolio Holdings are scheduled to ship on Wednesday, September 12, and our Sept. Bond Fund Intelligence is scheduled to go out Monday, September 17.
MFI's "Ten Years After" article says, "It was ten years ago this month that the bankruptcy of Lehman Brothers caused Reserve Primary Fund, the first and one of the largest money funds, to "break the buck," or drop below $1.00 per share. The event, following a year of subprime mortgage related tremors and runs on segments of the asset-backed and enhanced cash markets, triggered a full-scale financial meltdown. The week of Sept. 15, 2008, started with the Lehman Brothers bankruptcy, and ended with President George W. Bush stepping in to guarantee money funds and the broader banking system in its entirety. Below, we excerpt from some of our News during that fateful month, and we look back at the events that shook the money fund world."
Our lead piece continues, "On Wed., Sept. 17, 2008, we wrote the story, 'Reserve Primary Fund 'Breaks the Buck' Following Run on Assets.' It says, 'In just the second case of a money market mutual fund 'breaking the buck,' or dropping below the $1.00 a share level, in history, The Reserve Primary Fund cuts its NAV to $0.97 cents on Tuesday. The top-ranked fund, which held $785 million in Lehman Brothers CP and MTNs, was besieged by redemptions over the past two days. Assets of the total portfolio, which is largely institutional but which includes some retail assets, declined a massive $27.3 billion Monday and Tuesday to $35.3 billion.'"
It added, "As we wrote Monday, several other firms have protected their investors from fallout from the Lehman Brothers bankruptcy.... A total of 21 money funds to date have taken action to protect shareholders, but the privately-held Reserve was unable to arrange credit supports in time to prevent a run.... The combination of high yields, hot money and a lack of deep pockets likely will prove fatal to the first, and oldest money market mutual fund. As happened in 1994 with the liquidation of Community Bankers U.S. Government Money Market Fund at $0.96 a share [the only other money fund to ever 'break the buck'], we expect money market funds to soldier on with just a single case of a fund 'breaking the buck.'"
Our IMMFA Profile reads, "This month, Money Fund Intelligence speaks with Kim Hochfeld, the new Chair of IMMFA, the London-based Institutional Money Market Funds Association (www.immfa.org). Hochfeld, who is also Managing Director at Morgan Stanley Investment Management, gives us the latest on European Money Market Fund Reforms and talks about what's next for money funds in Europe. Our Q&A follows. (Note: Hochfeld and IMMFA MD Jane Lowe will keynote our upcoming European Money Fund Symposium in London, Sept. 20-21.)"
MFI asks, "MFI: When did you become Chair? Hochfeld responds, "I was elected chair for a three year term at the beginning of July by members at our Annual General Meeting. Our former Chair, Reyer Kooy, was re-elected to the Board, which is a positive for IMMFA as it allows a level of continuity. Kathleen Hughes from GSAM and Ian Lloyd from LGIM are still on the Board too, and we have been joined by Beccy Milchem from BlackRock, so it’s a team with plenty of experience."
We also query, "What has been IMMFA’s main focus?" Hochfeld tells MFI, "European Money Market Reform has absolutely been a key focus for us, especially over the last 18 months. It has been a long time coming, just trying to build for LVNAV and understand it, and then obviously there are challenges for our members as to how they position their Euro funds. There’s still much work to do, by the vendors, the money fund managers, the transfer agents, the fund administrators, the portal providers, their trading systems, etc., in order to be ready for the coming changes." (Watch for more excerpts in coming weeks, or see the latest issue of MFI for the full "profile".)
MFI's "DWS Launches ESG" piece says, "As we mentioned in our August 13 News, 'DWS Converts Variable NAV to DWS ESG Money Fund, First ESG Offering,' the manager formerly known as Deutsche just converted an existing fund into an “ESG” money market fund. Their press release, entitled, “DWS launches first ESG money market fund in the U.S.,” tells us “DWS Group today announced the launch of DWS ESG Liquidity Fund (ESGXX), the first money market fund available in the U.S. to apply ESG (Environmental, Social and Governance) criteria. The fund will invest in high-quality, short-term, U.S. dollar-denominated money market instruments paying a fixed, variable or floating interest rate while also filtering for various ESG factors using DWS’s proprietary software -- the ESG Engine.”
We quote DWS's Sonelius Kendrick-Smith, Head of Liquidity Solutions, Americas, “As a global asset manager, it is crucial for DWS to enable our clients to invest in a sustainable future by incorporating ESG factors into their global investment process across asset classes. Through the DWS ESG Liquidity Fund, investors will now be able to take advantage of our proprietary ESG Engine software while effectively managing their liquidity.”
Finally, we write in a sidebar, "More Brokerage Sweep Hits," "The hits keep coming for brokerage sweep accounts. Last month, ignites published, 'Rising Rates Give Brokerage Sweep Programs a Run for Their Money,' which discusses the huge rate differential between FDIC-insured sweeps and money funds. They write, 'The fatter margins that bank deposits offer pushed many large brokerages to dump money funds as sweep vehicles in favor of bank products…. But as interest rates rise, money funds are regaining appeal, and the amount brokerages must pay out on deposits … is inching up.'"
Our September MFI XLS, with August 31, 2018, data, shows total assets increased $29.2 billion in August to $3.071 trillion, after increasing $36.3 billion in July, decreasing $49.9 billion in June, and increasing $53.7 billion in May. Our broad Crane Money Fund Average 7-Day Yield rose 3 bps to 1.61% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 4 bps to 1.80% (its highest levels since Oct. 2008).
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA rose 3 bps to 2.06% and the Crane 100 rose to 2.07%. Charged Expenses averaged 0.44% (unchanged) and 0.27% (unch.), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 28 and 29 days, respectively (the former unchanged and the latter up 1 day). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
