State Street Global Advisors (SSGA) has filed to launch State Street ESG Liquid Reserves Fund, which should soon become the third environmental or "green" money market fund in the marketplace. This follows the conversion of a DWS MMF into DWS ESG Liquidity Fund late last year and the launch of BlackRock Liquid Environmentally Aware Fund (LEAF) earlier this year. The pending Prime Institutional SSGA fund will have the following share classes: Institutional Class ($25M minimum), Administration Class ($1K), Investment Class ($25M), Investor Class ($10M), Premier Class ($250M).
The Form N-1A Registration Statement filed under the State Street Institutional Investment Trust says, "The investment objective of the State Street ESG Liquid Reserves Fund ... is to seek to maximize current income while giving consideration to SSGA Funds Management, Inc.'s ... environmental, social and governance ('ESG') criteria, to the extent consistent with the preservation of capital and liquidity, by investing in U.S. dollar-denominated money market securities." (Note: The fund's expense ratios have not been provided yet.)
It explains, "The ESG Liquid Reserves Fund follows a disciplined investment process in which the Adviser bases its decisions on the relative attractiveness of different money market instruments while considering ESG criteria at the time of purchase. Among other things, the Adviser conducts its own credit analyses of potential investments and portfolio holdings, and relies substantially on a dedicated short-term credit research team."
State Street tells us, "The Fund invests in accordance with regulatory requirements applicable to money market funds, which require, among other things, the Fund to invest only in short-term, high quality debt obligations (generally, securities that have remaining maturities of 397 calendar days or less and that the Fund believes present minimal credit risk), to maintain a maximum dollar-weighted average maturity and dollar-weighted average life of sixty (60) days or less and 120 days or less, respectively, and to meet requirements as to portfolio diversification and liquidity. In the Adviser's opinion, the attractiveness of an instrument may vary depending on, among other things, the general level of interest rates and imbalances of supply and demand in the market."
They write, "Although the Fund is a money market fund, the net asset value ('NAV') of the Fund's Shares 'floats,' fluctuating with changes in the values of the Fund's portfolio securities. The Fund typically accepts purchase and redemption orders multiple times per day, and calculates its NAV at each such time."
The filing tells us, "The Adviser uses a proprietary platform to assign ESG ratings to issuers. For investments other than U.S. government securities, securities of governments other than the U.S. government and, in some cases, investments involving certain financial counterparties, the Adviser assigns 'R-Factor' scores to potential investments based on environmental, social, and governance scores developed by the Adviser using proprietary, internal research and analysis of information provided by third party data providers. The R-Factor score incorporates metrics and criteria recognized by the Sustainability Accounting Standards Board ('SASB') and ISS Governance ('ISG')."
It states, "Among the ESG criteria that the Adviser considers when assigning an R-Factor score are: impact on climate change and air quality, energy management, human rights, labor practices, business ethics, board independence and accountability, shareholder rights and engagement, and alignment of compensation and business strategy. Not all criteria are assigned equal weight in constructing an R-Factor score. Security selection in U.S. government securities, securities of governments other than the U.S. government, and securities issued by certain financial counterparties is based on the Adviser's fundamental security selection process after screening out issuers that receive ESG risk ratings from a third-party provider that do not meet the threshold set by the Adviser."
State Street adds, "The factors listed above are illustrative and do not necessarily reflect the full range of ESG factors the Adviser may consider in analyzing a particular security for investment. The availability of information about a company, ESG issues associated with a particular industry, changing market conditions or other circumstances may affect the manner in which the Adviser's ESG criteria are applied in a particular situation. In making investment decisions, the Adviser will normally consider ESG factors at the time of investment and will not apply ESG factors to make sell decisions. Once a security is purchased by the Fund, the Adviser will periodically review an issuer's performance to determine how it compares to the Fund's ESG criteria and affects the Fund's overall ESG orientation, but the Adviser typically will not sell a security based solely on a change in the Adviser's ESG evaluation of an issuer."
Finally, SSGA states, "The Adviser will select securities for investment by the Fund based on its consideration of fundamental and technical factors relating to the investment, as well as in some cases seeking to increase ESG scoring in the investment portfolio. The Adviser's ESG analysis is an integral component of portfolio construction. A company in which the Fund invests may rank higher or lower across ESG factors or in any one factor as compared with other companies in which the Fund invests or might invest. For example, it is possible that the Adviser might select for investment a company with a lower ESG score than another on the basis of that company's relative high score in the Adviser's overall analysis. Conversely, it is possible that the Adviser might select for investment an issue with a higher ESG score and lower yield than another to achieve a higher R-Factor score. The Adviser does not expect typically to invest in securities that do not achieve a minimum R-Factor threshold score set by the Adviser from time to time. There may be certain investments with desirable investment attributes that the Adviser will not consider for investment by the Fund because they do not meet that threshold, and the Fund might achieve less favorable investment results than a comparable fund that is not so limited."
See our April 10 Link of the Day, "`Moody's Rates BlackRock LEAF Aaa-mf," and see the following recent Crane Data News articles: "More on Green, ESG Money Funds: What's Not There, Barron's; N-MFP" (2/11/19), "SSGA's 2019 Global Cash Outlook Discusses ESG MMF Challenges, Tech, AI" (2/4/19), "FT Says China's Ant Shrinks; More on BlackRock LEAF; Weekly Holdings" (1/30/19), "BlackRock to Launch Environmental MF; Wells on Prime; SnP on EU Regs" (1/23/19), and "DWS ESG Liquidity Goes Live; Federated Explains Prime Private Fund" (9/17/18).
Note: Crane Data added BlackRock LEAF Direct (LEDXX) to our Money Fund Intelligence Daily last week, and the fund currently has $249 million and a yields of 2.53% (as of 4/23). (It will be added to our MFI monthly with the May issue.) We also show DWS ESG Liquidity Cap (ESIXX) with $309 million and a yield of 2.61% and DWS ESG Liquidity Inst (ESGXX) with $65M and a yield of 2.61%. We expect the SSGA fund to go live in 1-2 months.
