We learned from the article, "Goldman Sachs adds ESG criteria to money market fund," published by website Expert Investor, that Goldman would be joining J.P. Morgan Asset Management in implementing an ESG "screen" to some of its funds. Goldman posted a notice on its website, entitled, "ESG Enhancements to the Euro Liquid Reserves Fund," which explains, "Effective 11 November 2019, Goldman Sachs Asset Management ('GSAM') will apply new Environmental, Social, and Governance ('ESG') enhancements to the Goldman Sachs Euro Liquid Reserves Fund." Goldman won't be adding 'ESG' to the name though. (See also our Nov. 6 News, "Aviva Investors Discusses ESG MMFs; Fitch Rates MS ESG" and our Nov. 4 News, "UBS Asset Mgmt Files to Launch Select ESG Prime Institutional Fund.")

Goldman's posting continues, "The ESG enhancements will focus on a combination of activity and product-based exclusions and a dedicated engagement strategy focused on diversity and inclusion. This complements the investment objectives of capital preservation and provision of daily liquidity. GSAM Liquidity Solutions is committed to being a leader in ESG dedicated money market funds and we plan to evolve our approach and expand our ESG product range in the near term. Based on extensive analysis and the stringent credit quality requirements of our AAA-rated money market funds, we do not anticipate a material impact to the Fund’s investment strategy or liquidity profile."

Expert Investor adds, "Over the coming months, GSAM is planning to roll out a similar approach to two or three similar funds, and in other currencies, a spokesperson said. The list of excluded activities, themes and thresholds will evolve over time, and ESG rating provider MSCI will deliver the constituent information."

Another article, "GSAM integrates ESG to Euro money market fund," posted on Investment Europe website, comments, "Goldman Sachs Asset Management (GSAM) has announced the first of its European money market funds to apply ESG enhancements. The fund will continue to operate as a Low Volatility NAV money market fund under the European regulation which became effective during Q1 of this year."

In other international money fund news, Fitch Ratings' Alastair Sewell recently spoke on Bloomberg Radio on "Chinese Money Market Funds. Sewell comments, "Yu'e Bao is a major money market fund. It's one of the very few money market funds in the world with more than $100 billion in assets. We count only 10 of those funds which have achieved that milestone.... This fund ... is the only Chinese money market fund with more than 100 billion in assets under management."

He continues, "This fund has decreased in size rather dramatically. It peaked at 1.7 trillion Chinese yuan in March of 2018 before shrinking to approximately 1 trillion Chinese yuan in March of this year. That shrinkage means that this fund was, for a time, the largest money market fund in the world but has now lost its crown to funds managed by J.P. Morgan Asset Management and Fidelity Investments."

Sewell adds, "The Chinese money market fund segment has been vibrant. It's grown ... dramatically. The industry only really started back in 2003. If you look at the U.S., money market funds first appeared back in the 1970s. So over here in China, you saw a massive expansion in the assets under management in the Chinese money market funds.... Right now there are somewhere in the order of 350 money market funds active in China. They look a little bit different to the money market funds people will have seen in the U.S. and Europe, and they certainly have quite a different risk profile to the funds that we typically see."

He also tells Bloomberg, "Let me just remind you these are money market funds, so these are low-risk vehicles which invest in short-term securities issued by banks, corporates, and governments. Yet in China, the money market funds are able to use leverage of up to 20 percent, and that's just not something you would see in a money market fund in the US or Europe. These funds are structurally different to the risk profile of funds in the U.S. and Europe."

Sewell explains, "These money market funds ... will invest in a diverse array of securities, but like money market funds everywhere they will be concentrated on the banking sector.... There is an emergence of credit stress in the Chinese market, and there's an emergence of credit issues among some of these smaller banks. [If] money market funds hold them, [this] would feed through to the portfolio quality and the risk profile of the money market fund.... The regulation in China has tightened over the last few years. It's been rapid, there have been four rounds of regulatory reforms addressing Chinese money market funds in almost as many years, compared with the one round in Europe and the one round in the US recently."

Finally, Wells Fargo Money Market Funds published its latest "Portfolio Manager Commentary," which tells us, "The annual year-end funding rite is upon the money markets. As of October 30, 2019, the percent of commercial paper outstanding that matures after the end of the year is 39.5%, an amount that is higher compared with the past several years at about the same time. While the pressure on issuers to extend over year-end for regulatory requirements remains the same, this year we are in a decreasing (or perhaps static) yield environment as opposed to the past several year-ends where rates were expected to rise. In years past, investors waited to extend over year-end as rates were expected to rise, thus favoring shorter maturities that reset more frequently."

They write, As the Fed informed us, even though the mid-cycle adjustment is over, the risk is for lower, not higher, rates. Consequently, investors have tended to buy longer-dated securities to lock in higher yields, a pattern that is evident in the Fed maturity chart that tracks weekly statistics on commercial paper maturing after year-end."

Wells' update also comments, "Yields in the municipal money market sector began to normalize following a mini spike in short-term rates during the volatile month of September. After reaching a multi-month high of 1.58% on September 25, the Securities Industry and Financial Markets Association (SIFMA) Municipal Swap Index fell for five straight weeks to close out the month at 1.12%, or 67% of 1-week LIBOR. Demand for overnight and weekly variable-rate demand notes (VRDNs) and tender option bonds (TOBs) strengthened throughout the month as municipal money market funds were the recipients of approximately $1.5 billion of inflows during the month, according to Crane Data. The drop in short-term municipal rates effectively priced in the Fed's rate cut from September 18, just on a one month lag. The potential impacts from the FOMC's October 30 rate cut should become apparent next month."

Finally, they add, "We are quickly progressing toward the end of the year.... [The impeachment investigation] has the potential for affecting volatility in risk assets.... While not necessarily good news for [stock and bond] holders, it's not unusual to see a knock-on effect from such volatility in the form of increased flows into the money markets as a sort of perceived refuge from market gyrations. Time will tell how this all plays out, but based on these as well as seasonal factors, money markets seem poised to hit new highs in total assets under management. Stay tuned!"

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