Boutique cash investment manager Capital Advisors Group published a brief entitled, "How Are Your Peers Managing Their Cash?" It provides a little more evidence that corporate cash investors are beginning to inch their way out of their government money fund shells. They tell us, "Following the collapse of Lehman Brothers in 2008, the rapidly deteriorating economic environment in the U.S. and abroad caused most treasurers to reevaluate their cash investment strategies, with a specific focus on restricting investment in certain asset types. Some companies implemented these restrictions by changing their investment policies, while others simply gave instructions to their investment advisors to limit investment activity to the most conservative corner of their existing guidelines. Across the board, we witnessed our clients 'hunkering down' in government-issued and government-backed debt during the height of the credit crisis. However, with a substantial improvement in the credit markets over the past ten years, we have observed a considerable shift in clients' desire to pursue more yield by allowing for investments in non-government securities."
CAG explains, "When considering changes to their investment strategies, many treasurers are interested in understanding the decisions being made by their peers. This context not only helps to validate the recommendation that a treasurer may receive from an investment manager, but it also provides a reality check before a new cash management strategy is presented to an Audit Committee or Board of Directors. In 2012 we published a white paper using Capital Advisors Group's client data to compare how investment strategies changed over the three years from March 31, 2009 to March 31, 2012. With another 6 years having elapsed, we hope that some fresh data will assist treasurers in evaluating their current investment strategies and whether to pursue additional yield in their cash portfolios."
Author Siobhan Monaghan writes, "As the credit markets deteriorated in 2007 and 2008, we sharply reduced our clients' exposure to potentially unstable issuers of industrial and financial corporate debt. Following the collapse of Lehman Brothers in September of 2008, we advised that clients invest solely in government-guaranteed securities. As a result, on March 31, 2009 none of our clients in the sample permitted investments in securities not guaranteed by the U.S. Government."
She continues, "However, as credit conditions improved, Capital Advisors Group gradually resumed investment in corporates, first purchasing select industrial credits in July 2009 and select financial credits in October 2009. By March 31, 2012, Capital Advisors Group was comfortable with the credit profiles of many industrial and financial issuers, and approximately half of the sample permitted investment in both industrials and financials.... By August 31, 2018, an additional 14% had grown comfortable with financial credits and an additional 11% with industrial exposures."
Capital Advisors Group concludes, "Worries about new crises and fears of resulting contagion obscure the fact that the U.S. economy and world economy have recovered from the depths of the credit crisis. On March 31, 2009, none of the clients in the sample permitted investment in corporates, or foreign sovereign and foreign sovereign agency debt. On March 31, 2012, 62% of the clients permitted investment in industrials, 54% permitted investment in financials, and 24% permitted investment in foreign sovereign and foreign sovereign agency debt. By August 31, 2018, those figures had grown to 73%, 68% and 30%, respectively."
In other news, mutual fund reporter ignites writes about money market funds this week with a piece entitled, "Money Funds Weather Decade of Massive Change." (See our Sept. 14 Link of the Day, "Crane on Crisis in ignites Video.") Their recent article explains, "When the $62.4 billion Reserve Primary Fund's net asset value dropped to $0.97 per share on Sept. 16, 2008, it set in motion a chain of events that radically changed the structure of these products and the industry overall. Although the fund's investors eventually recovered about $0.991 on the dollar, the fund's travails during the crisis landed money funds a spot at the top of regulators' agendas."
The article comments, "In response to the SEC's second set of reforms, about $1 trillion in assets moved out of prime funds and into government products ahead of the October 2016 compliance date. Near-zero short-term interest rates during this period also had a huge impact on money funds.... Now, with about $2.86 trillion in assets, the money fund industry is smaller in assets than it was immediately before the financial crisis. But industry executives say that money funds are now safer."
It continues, "With the regulatory changes came higher costs for running the funds, accelerating a wave of consolidation already underway before the financial crisis. In 2008, there were 138 money fund sponsors that reported to iMoneyNet, and now there are 66, notes Fidelity CIO of money markets Tim Huyck.... Ten years ago, the top 10 sponsors by assets represented 65% of total industry assets, whereas the top 10 today represent 79%, he adds. That industry consolidation has benefited investors, argues John Hollyer, global head of fixed income at Vanguard. 'In the end, I think shareholders are better served by well-resourced providers who are committed to the business,' he says."
The ignites article adds, "The post-financial-crisis money fund reforms have led investors -- particularly institutional ones -- to refine how they evaluate products. 'The level of due diligence is higher,' says John Tobin, head of portfolio management for J.P. Morgan Asset Management's global liquidity business. Investors' questions about credit quality analysis are more sophisticated than they were 10 years ago, he says. JPMAM's money fund client base is predominantly institutional. In addition, many institutional investors are now 'segmenting' their cash according to the time frame within which they want to use it -- a more nuanced approach than most previously took, executives say. '[C]ash is the lifeblood of a corporation,' Tobin says. 'It's not something they play games with.'"
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of Sept. 14) includes Holdings information from 76 money funds (up from 60 on August 24), representing $1.445 trillion (up from $1.037 billion on August 24) of the $2.937 (49.2%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our Sept. 13 News, "September MF Portfolio Holdings: Treasuries Up; Agency, Repo Down.")
Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $519.9 billion (up from $358.6 billion on August 24), or 36.0%, Treasury debt totaling $454.6 billion (up from $290.4 billion) or 31.5%, and Government Agency securities totaling $287.6 billion (up from $242.9 billion), or 19.9%. Certificates of Deposit (CDs) totaled $55.1 billion (up from $46.9 billion), or 3.8%, and Commercial Paper (CP) totaled $61.4 billion (up from $45.0 billion), or 4.2%. A total of $33.4 billion or 2.3%, was listed in VRDNs and the Other category (primarily Time Deposits), accounted for $31.8 billion, or 2.2%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $454.6 billion (31.5% of total holdings), Federal Home Loan Bank with $224.7B (15.6%), BNP Paribas with $76.6 billion (5.3%), RBC with $43.1B (3.0%), Federal Farm Credit Bank with $40.0B (2.8%), Wells Fargo with $35.2B (2.4%), Credit Agricole with $30.5B (2.1%), Societe Generale with $27.4B (1.9%), Natixis with $25.7B (1.8%) and Nomura with $24.9B (1.9%).
The Ten Largest Funds tracked in our latest Weekly Holdings update include: JP Morgan US Govt ($129.4B), Fidelity Inv MM: Govt Port ($110.5B), Goldman Sachs FS Govt ($102.0B), BlackRock Lq FedFund ($88.9B), Wells Fargo Govt MMkt ($72.8B), BlackRock Lq T-Fund ($67.4B), Dreyfus Govt Cash Mgmt ($61.7B), Goldman Sachs FS Trs Instruments ($56.6B), Morgan Stanley Inst Liq Govt ($53.7B), and State Street Inst US Govt ($50.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary.)
