Money market mutual funds experienced one of the craziest weeks in their 50 year history last week as the Federal Reserve and Treasury launched emergency measures to calm turmoil and outflows in the Prime and Municipal segments of the market. Meanwhile, Government money funds saw record-shattering inflows and overall assets surged to record levels not seen since January 2009. Late last week, two fund groups, Goldman Sachs and Dreyfus, acted to provide liquidity to their funds. Dreyfus parent BNY Mellon took steps to provide liquidity and support NAVs by purchasing blocks of 'money good' securities at par, while Goldman Sachs Bank USA provided liquidity by purchasing assets from the fund at market value as fears over the coronavirus wreaked havoc across the economy and impaired liquidity in financial markets. Prime money assets declined by $97.7 billion to $981.3 billion in the week through Thursday, March 19, but the flows have begun slowing under the onslaught of Federal Reserve and Treasury support programs. Government money market funds jumped by $264.5 billion to $3.150 trillion, and Tax Exempt MMFs fell $6.1 billion to $134.0 billion. (We'll publish our 3/20 asset totals, and our 3/19 MNAVs and WLAs, Monday morning at 8am in our latest Money Fund Intelligence Daily.) Month-to-date in March (through 3/19), Prime assets have fallen by $113.9 billion, Govt funds have risen by $419.5 billion, and Tax Exempt have fallen by $5.8 billion. (See here for the Federal Reserve's new FAQ on its Money Market Mutual Fund Liquidity Facility.)
On Thursday and Friday, we saw four "Form N-CR Money Market Fund Material Event" filings, which occur in the case of a default, the "provision of financial support" or a "breaking of the buck." No defaults or buck-breakings were involved here or have occurred to date, but these are the first material instances of financial support for funds being provided to funds since the Subprime Liquidity Crisis in 2007-2008. (For details on N-CR, see our May 21, 2015 News, "Dechert Examines Upcoming Form N-CR and Disclosure Requirements.")
The Form N-CR filing for Goldman Sachs Financial Square Money Market (FSMXX), says, "The purchases reported herein were made in reliance on Rule 17a-9 and Investment Company Institute, SEC No-Action Letter (pub. avail. March 19, 2020)." They show under the "Provision of financial support to fund," the purchase of $722 million in securities, including CP or other "credit" instruments from Commonwealth Bank of Australia, DNB, Mizuho, Nordea, Natixis and a couple others, at market value. These securities are all still highly rated and most likely will pay off when they mature (there have been no defaults in the CP market to date, just illiquidity). But affiliated Goldman Sachs Bank USA took them out of the fund to promote liquidity in the short-term credit markets and increase the weekly liquid assets (WLA), which were already above the 30% regulatory liquidity levels. FS Money market was 34% WLA on 3/19 when the action was taken. This fund saw assets decline $7.1 billion in the week through Thursday to $9.6 billion, and its NAV stood at 0.9982 on Thursday and WLA stood at 46.0% on Friday.
Another fund, Goldman Sachs Financial Square Prime Obligations (FPOXX), reports that, "Goldman Sachs Bank USA purchased $301,201,274 of securities from the Fund," including most of the same financial names. (More than one-third of these purchases were of securities with maturities longer than 6 months.) This fund saw assets decline $1.7 billion in the week through Thursday to $5.5 billion, and its NAV stood at 0.9988 while WLA stood at 44% in the fund when this action was taken. The fund finished the week with weekly liquid assets at 50% on Friday.
David Fishman, head of the Liquidity Solutions portfolio management team within Goldman Sachs Asset Management, tells us, "These actions underscore our commitment to the GSAM funds providing liquidity to clients focused on the near-term implications of the current market environment." (See also Reuters', "Goldman injects $1 billion into own money-market funds after heavy withdrawals.")
Finally, Dreyfus Cash Management (DICXX), which posted the first filing of the week, announced the purchase of $1.2 billion on Thursday, then also posted another filing Friday announcing the purchase of $949 million. The latter says, "Bank of New York Mellon purchased securities from the Fund in accordance with Rule 17a-9." Securities listed include those from Bank of Montreal, Swedbank, Credit Suisse, Bank of Nova Scotia, Westpac Banking and TD Bank. This fund saw the largest outflows on a percentage basis among Prime Institutional MMFs, with assets declining $6.0 billion in the week through Thursday to $5.1 billion. Its NAV stood at 0.9991 and weekly liquid assets stood at 39.0% on Thursday.
Fund reporter ignites broke the Dreyfus news Friday, in "BNY Mellon Buys $1.2B in Securities from Prime Fund Beset by Outflows." They wrote, "BNY Mellon on Wednesday propped up its Dreyfus Cash Management fund – an institutional prime money market fund – by buying $1.2 billion in securities from the product, according to a Thursday regulatory filing. The fund had suffered $6 billion in net outflows over the week ended March 19, according to Crane Data. Its assets under management stood at $5.4 billion as of Thursday."
They quote BNY Mellon spokesperson, "The Dreyfus Cash Management fund liquidity level was approaching the 30% weekly liquid asset level, which prompted BNY Mellon to purchase $1.2 billion of securities in the fund, providing additional liquidity to the fund to meet shareholder redemptions." The ignites piece explains, "SEC reforms passed in 2014 allow prime funds to impose liquidity fees on redemptions – or suspend redemptions -- after weekly liquid assets drop below 30% of total assets. The SEC also requires funds to assess a 1% liquidity fee if weekly assets fall below 10% of total assets, unless the fund’s directors decide this would not be in the interest of its shareholders."
It continues, "The Dreyfus fund has a floating net asset value -- a requirement for all institutional prime funds under the SEC's 2014 reforms. As such, the fund wasn't in danger of dipping below a stable $1.00 net asset value -- breaking the buck -- but fund managers may fear negative repercussions from a NAV dropping 'too much,' Crane says. Before the question of whether to impose redemption gates and liquidity fees arose, 'BNY Mellon must have just decided to protect the fund,' says Peter Crane, president and CEO of the money fund tracker."
They add, "If a fund imposes liquidity fees or redemption gates, the advisor must disclose this to the public. The fund did not impose a liquidity fee or suspend redemptions, the filing states. The disclosure also states that BNY Mellon will provide more details in an amended filing early next week. The securities that BNY Mellon purchased are bank holdings, the SEC filing shows." "You may see a few more of these [disclosures] until the outflows ... have lessened," Crane says. "The outflows are slowing, but they're continuing."
The FT also posted an article, "BNY Mellon steps in to support money market fund after outflows," which says, "BNY Mellon stepped in to support one of its money market funds amid sharp outflows from parts of the sector this week, buying $1.2bn of the fund’s assets so it had cash to help cover redemptions. The US bank made the liquidity injection as investors withdrew $6bn from the Dreyfus Cash Management fund in the week ending Thursday, around half of its assets, according to Crane Data."
Also on Friday, a statement entitled, "Federal Reserve Board expands its program of support for flow of credit to the economy by taking steps to enhance liquidity and functioning of crucial state and municipal money markets," explains, "The Federal Reserve Board on Friday expanded its program of support for the flow of credit to the economy by taking steps to enhance the liquidity and functioning of crucial state and municipal money markets. Through the Money Market Mutual Fund Liquidity Facility, or MMLF, the Federal Reserve Bank of Boston will now be able to make loans available to eligible financial institutions secured by certain high-quality assets purchased from single state and other tax-exempt municipal money market mutual funds."
For the Federal Reserve's previous support actions, see: "Coordinated central bank action to further enhance the provision of U.S. dollar liquidity" (3/20), "Federal Reserve Board encouraged by increase in discount window borrowing to support the flow of credit to households and businesses" (3/19), "Federal Reserve announces the establishment of temporary U.S. dollar liquidity arrangements with other central banks" (3/19), "Federal bank regulatory agencies issue interim final rule for Money Market Liquidity Facility" (3/19), "Federal Reserve Board broadens program of support for the flow of credit to households and businesses by establishing a Money Market Mutual Fund Liquidity Facility (MMLF)" (3/18) and "Federal Reserve Board announces establishment of a Primary Dealer Credit Facility (PDCF) to support the credit needs of households and businesses" (3/17).
For recent Crane Data News, see: "Fed Announces Commercial Paper Funding Facility; ICI Holdings Update" (3/18), "Treasury to Temporarily Guarantee Money Mkt Funds; Fed Adds MMLF" (3/19) and "MMF Assets Hit Record High on Huge Govt Jump, Prime Drop; More MMLF" (3/20). See also, The Wall Street Journal's update, "Why the Fed Had to Backstop Money-Market Funds, Again."
