Money fund providers and corporate cash managers gathered in Boston earlier this week for AFP 2019, the Association for Financial Professionals' Annual Conference. Perennial topics like safety, liquidity and yield, along with recent market events, were discussed, as well as a new dose of technology, portals and ESG. We briefly quote from a couple of the sessions below, and we also review the latest money fund asset totals.
During the session, "Beyond Trading: Exploring Portal Capabilities," hosted by Tom Knight of Institutional Cash Distributors (ICD), Mark Sahler of Jeffries commented, "Obviously, being in treasury, some of the needs that we have are being able to preserve liquidity and to have a nimble way to move cash from money funds, FX investments and to create an opportunity for us to move money without the use of banks and borrowing."
He explained, "[With] cash optimization, there are a lot of opportunities. We don't just use the money fund portal; we invest in very large FX funds. I invest in securities, ... Treasury funds, money funds, Prime.... Being an investment bank, we need to mobilize cash properly on a more daily basis than some other firms. We can buy large pools of securities that would require us to come in and out.... We use the money fund portal primarily to obtain those objectives. I have larger balances in money funds than a lot of corporates have for that reason -- because it's just easier."
On portals, Sahler added, "From a risk management perspective, you can see across your pools of investments. You can see what your potential risk is, what your asset risk is and your concentrations in a lot of different sectors.... We can get into and out of 20 or 30 funds in a pretty easy way using the money fund portal. The other thing about the coordination.... Stability is key, and liquidity.... You really need to get to the cash in a quick way. You need to take a more offensive approach to portfolio liquidity."
Another panelist, Matthew Post of Qualcomm told the audience, "On the money fund side, we do have offshore US dollar funds, we use both prime and government domestic 2a-7 funds.... Offshore ... China, for example, has a lot of our short term liquidity, so we usually stagger between having bank deposits and having money funds for our short-term investments.... We have currently about $10-or-12 billion in cash and cash equivalents. I'd say about two-thirds of that is in money market funds."
He continued, "We want to make sure we have large funds so that we can carry larger positions and not have to worry about liquidity. We have a limit of 5 percent maximum in aggregate.... We do have quite a lot of money funds that we have invested in across the space ... at least a dozen or so.... That way we have diversified funds."
Another session, "Drowning in Liquidity But Still Thirsty: How Much is Too Much?," was run by Garret Sloan of Wells Fargo Securities. In it, Bethany Glassbrenner of American Eagle Outfitters explained why corporates were holding 50% of their cash in bank deposits during the zero yield era. She said, "That's when the market rates were starting to compress. There wasn't a lot of yield to be had ... we were kind of hovering in that zero-interest rate environment. So, the banks were offering ECR, and that was the best you could get. If you were comfortable with your banks and ECR was the only opportunity for any yield, then ECR was a great opportunity ... with the unlimited deposit insurance."
She added, "If you're comparing apples to apples, I could be in a safe bank deposit or a safe government fund.... I say 10 to 15 basis points is my is my threshold of chasing. If it's not more than 10 basis points, I'm just going to stay liquid because our businesses are uncertain and we don’t know what's coming around the corner. I'd rather just stay liquid and, at a comparable deal, than get tied up in a time deposit or something.... The juice has to be worth the squeeze."
In other news, money fund assets increased again this week after a dip last week; they've risen 10 weeks out of the past 12, and 24 weeks out of the past 27. ICI's latest "Money Market Fund Assets" report shows that MMF totals have increased by $438 billion, or 14.4%, year-to-date. Over the past 52 weeks, ICI's money fund asset series has increased by $604 billion, or 21.0%, with Retail MMFs rising by $253 billion (23.3%) and Inst MMFs rising by $351 billion (19.5%).
ICI writes, "Total money market fund assets increased by $17.55 billion to $3.49 trillion for the week ended Wednesday, October 23, the Investment Company Institute reported.... Among taxable money market funds, government funds increased by $12.38 billion and prime funds increased by $5.80 billion. Tax-exempt money market funds increased by $633 million." ICI's weekly series shows Institutional MMFs rising $11.7 billion and Retail MMFs increasing $5.8 billion. Total Government MMF assets, including Treasury funds, were $2.599 trillion (74.6% of all money funds), while Total Prime MMFs were $748.6 billion (21.5%). Tax Exempt MMFs totaled $138.1 billion, 4.0%.
They explain, "Assets of retail money market funds increased by $5.81 billion to $1.34 trillion. Among retail funds, government money market fund assets increased by $1.90 billion to $765.18 billion, prime money market fund assets increased by $4.10 billion to $446.84 billion, and tax-exempt fund assets decreased by $188 million to $125.71 billion." Retail assets account for over a third of total assets, or 38.4%, and Government Retail assets make up 57.2% of all Retail MMFs.
The release adds, "Assets of institutional money market funds increased by $11.74 billion to $2.15 trillion. Among institutional funds, government money market fund assets increased by $10.48 billion to $1.83 trillion, prime money market fund assets increased by $1.70 billion to $301.78 billion, and tax-exempt fund assets decreased by $446 million to $12.36 billion." Institutional assets accounted for 61.6% of all MMF assets, with Government Institutional assets making up 85.4% of all Institutional MMF totals.
Earlier this month, assets tracked by Crane Data's Money Fund Intelligence Daily broke the $3.8 trillion level for the first time ever. Month-to-date through October 23, assets tracked by our MFID have increased by $53.1 billion to $3.812 trillion. In October so far, the Crane Institutional MF Index has increased by $26.6 billion to $2.527 trillion, while the Crane Retail MF Index has risen $24.1 billion to $1.144 trillion. Prime MMFs have increased by $30.5 billion to $1.062 trillion while Govt (including Treasury) MMFs have grown by $20.1 billion to $2.610 trillion.
