Federated Hermes President & CEO J. Christopher Donahue spoke earlier this week (Tuesday) at RBC Capital Markets' "2020 Financial Institutions Conference," and briefly discussed the recent Federated Hermes merger and money market funds. He comments, "This is an exciting thing for Federated Hermes. We started talking to our friends at Hermes back in 2012 because we were looking for a global footprint, excellent investment performance, professionals and most importantly, a cultural match. We had six years before we closed the trade in the second half of 2018 to do what I call, cultural due diligence." We quote from the Federated CEO below, and we also excerpt from press releases from Aviva Investors and ICD Portal.
Donahue continues, "What we called it was a reverse transformational merger. We wanted to take the beautiful things that Hermes had created, the ESG, the responsible investing, the sustainability ... and bring it inside Federated.... We're actually engaging other companies, and this engagement is a part of the experience that we hope to create for investors as part of the whole branding move. Engagement is a way to tell the story and create an experience for investors.... We're changing all the funds and we are changing the name, to bring two together, to make two plus two a lot more than four."
On money fund growth, he explains, "A lot of things are now possible this year, that might not have been before.... The market volatility today does send some on a flight for quality, and so we have seen positive flows on the money market fund side. It should not surprise you to know that on total liquidity year-to-date we're up $13 billion, and $10 billion for the month. If you look at it strictly in the point of view of money market mutual funds, we're up about $5 billion year-to-date and about $8 billion through the one-month period here in March. So, you've seen some movements there. On the other hand, when you see rates coming down ... the inspiration to transfer from a deposit account to a money market fund does get diminished. It doesn't get destroyed but it is reduced."
Donahue also says, "In terms of the overall business, from the Fed's point of view, our people believe that they're going to knock rates down next week by 50 basis points at the regular meeting. We believe strongly that negative rates are out of the question. We keep in contact with the Fed; they call us at various times to do little tests and exercises. They have added, as you know, $50 billion to the repo market, $45 billion to the one week markets and their tool chest remains loaded with other tools ... all on top of a bank structure that is a lot stronger than before."
He adds, "What we're seeing now in our trading desk and money market funds, is basically business as normal. Yes, a few more positive flows -- usually this week we're looking at some amount of negatives ... because of the tax day coming up on Friday. But the flows are pretty normal from our point of view. They're coming in both Prime and Govt, [and] the spreads between Prime and Govt are maintaining their 17-18 basis point difference. From the point of view of issuers: buyers, transactions, liquidity, etc., it is all quiet on the Western Front."
In other news, a press release entitled, "Aviva Investors launches US Dollar Liquidity Fund" tells us, "Aviva Investors, the global asset management business of Aviva plc ('Aviva'), announces the launch of the Aviva Investors US Dollar Liquidity Fund, a Low-Volatility Net Asset Value (LVNAV) fund, targeting low-risk returns and daily liquidity through a diversified portfolio of high-grade, US dollar-denominated short-term debt instruments."
It continues, "Sitting alongside Aviva Investors' existing range of sterling- and euro-denominated liquidity strategies, the fund aims to provide an actively managed alternative to bank deposits, allowing investors to diversify cash holdings across a range of high-quality money market instruments. Katie DellaMaria, who joins Aviva Investors' Chicago-based investment team from BMO Global Asset Management where she was Director and Fixed Income Portfolio Manager, will be manager of the fund which launches with almost $800 million of initial seed capital, sourced from existing Aviva Investors clients. Aviva Investors currently manages over £45 billion in assets on behalf of its liquidity investors."
Aviva's Anthony Callcott comments, "Cash management is one of Aviva Investors' core capabilities, developed over decades of managing assets for our parent and third-party investors. This launch complements our existing range of AAA-rated Money Market Funds and satisfies the investor appetite we are seeing from our European investor base, where there is increasing demand for low-risk, US Dollar-denominated investments. We also welcome Katie to the business, whose prior experience in managing short-intermediate bond strategies will complement and strengthen the existing skillset of our Liquidity team."
Caroline Hedges adds, "As investors continue to look for diversified and liquid portfolios, we believe this fund represents an off-balance sheet alternative to those traditional short-term bank deposits, which aims to deliver competitive yields and daily liquidity without diluting the security of capital." (Note: These funds are only available to non-U.S. institutional investors. Let us know if you'd like to see our latest Money Fund Intelligence International, which tracks the "offshore" money fund marketplace.)
Finally, another release, "Corporate Assets in Money Market Funds Grew 38% Y/Y in 2019 on ICD Portal," states, "ICD, corporate treasury's trusted independent portal provider of money market funds and other short-term investments, closed 2019 with its strongest quarter ever, ending the year with 24% revenue growth. The Q4 average daily balance of corporate treasury investments on ICD Portal grew 38% year-over-year, outpacing the market's 21% increase in institutional money market fund use tracked by the Investment Company Institute (ICI)."
CEO Tory Hazard says, "Growth in assets as well as in the number of clients on ICD Portal demonstrates treasury's need for greater access, visibility and control over cash and short-term investments.... Our growth confirms corporates' preference for independent providers, unbiased fund selection, investment risk analysis and consolidated reporting. We will continue to deliver the leading-edge technology and excellent service the corporate investment community has come to rely on from ICD. It's all we do."
The release adds, "ICD clients include the world's largest corporations from the Fortune 1000 and FTSE 350. ICD provides access to over 300 money market funds from more than 30 fund companies. Through one, secure platform, clients research, trade, settle and report on money market funds and other investments, such as: Time Deposits, Short Duration Bond Funds, Federally Insured Cash Accounts (FICA), Federally Insured Brokered CDs and Direct Commercial Paper."
