As we mentioned last week, the Investment Company Institute recently published its "2020 Investment Company Fact Book," an annual compilation of statistics and commentary on the mutual fund industry. (See our May 6 Link of the Day, "ICI Releases 2020 Fact Book.") We reviewed the bulk of the money fund content in our May 13 News, "ICI's 2020 Fact Book Reviews Money Funds Trends; BIS on Covid Crisis," but below we focus on the numerous "Data Tables" involving "Money Market Mutual Funds, which start on page 230. ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution.
ICI's annual statistics show that there's been a steady decline in the number of money market mutual funds over the last 15 years. (See Table 35 on page 230.) In 2019, according to the Fact Book, there were a total of 364 money funds, down from 368 in 2018, 802 in 2007, and down from 1,014 in 2001. The number of share classes stood at 1,126 in 2019, down from 1,128 in 2018 and 1,998 in 2008.
Table 36 on page 231, "Money Market Funds: Total Net Assets by Type of Fund," shows that total net assets in taxable U.S. money market funds increased $595.0 billion to $3.632 trillion in 2019. At year-end 2019, $2.262 trillion (62.3%) was in institutional money market funds, while $1.370 trillion (37.7%) was in retail money market funds. Breaking the numbers down by fund type, $774.0 billion (21.3%) was in prime funds, $2.720 trillion (74.9%) was in government money market funds, and $137.6 billion (3.8%) was in tax-exempt accounts.
Also, Table 37 on page 232, "Money Market Funds: Net New Cash Flow by Type of Fund," shows that there was $552.7 billion in net new cash flow into money market funds last year. A closer look at the data shows $387.5 billion in net new cash flow into institutional funds and a $165.2 billion cash inflow into retail funds. There were also $363.7 billion in net inflows into Government funds, versus $198.0 billion in net outflows from Prime funds.
Table 39 (page 234), "Money Market Funds: Paid and Reinvested Dividends by Type of Fund," shows dividends paid by money funds reached their highest level in 11 years, $61.4 billion, $33.0 billion of which was reinvested (53.7%). Dividends have been as high as $127.9 billion in 2007 (when rates were over 5%), and as low as $5.2 billion in 2011 (when rates were 0.05%). Reinvestment rates were 64.4% in 2007 and 62.3% in 2011, so they've remained relatively stable over the past decade.
ICI's Tables 40 and 41 on pages 235 and 236, "Taxable Government Money Market Funds: Asset Composition as a Percentage of Total Net Assets" and "Taxable Prime Money Market Funds: Asset Composition," show that of the $2.720 trillion in taxable government money market funds, 27.2% were in U.S. government agency issues, 36.1% were in Repurchase agreements, 21.4% were in U.S. Treasury bills, 15.1% were in Other Treasury securities, and 0.2% was in "Other" assets. The average maturity was 38 days, up 7 days from the end of 2018.
The second table shows that of the $774.0 billion in Prime funds at year-end 2019, 33.2% was in Certificates of deposit, 30.0% was in Commercial paper, 25.7% was in Repurchase agreements, 1.8% was in US government agency issues, 0.6% was in Other Treasury securities, 0.7% was in Corporate notes, 0.8% percent was in Bank notes, 5.0% was in US Treasury bills, 1.0% was in Eurodollar CDs, and 1.3% was in Other assets (which includes Banker's acceptances, municipal securities and cash reserves).
Table 60 on page 255, "Total Net Assets of Mutual Funds Held in Individual and Institutional Accounts," shows that there was $1.298 trillion of assets in money funds with Institutional investors and $2.334 in MMF assets in Individual accounts in 2019.
Finally, Table 62, "Total Net Assets of Institutional Investors in Taxable Money Market Funds by Type of Institution and Type of Fund," shows of the total of $1.292 trillion in Total Institutional assets ($1.205 trillion in Institutional funds and another $86.8 billion in Retail funds), $557.0 billion were held by business corporations (43.1%), $537.8 billion were held by financial institutions (41.6%), $113.1 billion were held by nonprofit organizations (8.8%), and $84.3 billion were held by Other (6.5%).
In other news, The Federal Reserve Bank of New York posted a brief on "The Commercial Paper Funding Facility" on its Liberty Street Economics blog. It tells us, "In mid-March, the Federal Reserve announced a slew of credit and liquidity facilities aimed at supporting credit provision to U.S. households and businesses. Among the initiatives is the Commercial Paper Funding Facility (CPFF) which aims to support market functioning and provide a liquidity backstop for the commercial paper market. The domestic commercial paper market provides a venue for short-term financing for companies which employ more than 6 million Americans. Securities in the commercial paper market represent a key asset class for money market mutual funds. This post documents the dislocations in the commercial paper market that motivated the creation of this facility, and tracks the subsequent improvement in market conditions."
The post explains, "In March, financial markets began to experience disruptions related to the outbreak of COVID-19, and the commercial paper market was no exception. Anecdotally, investors in the market were unwilling to extend credit to issuers except at very short maturities of less than five days.... [T]his reduced availability of credit coincided with yield-spread increases even for the highest-rated issuers -- those with short-term credit ratings of A1 (Moody's) or P1 (S&P) -- across the maturity spectrum. This market dislocation negatively impacted companies that needed to refinance their maturing commercial paper at a time when they urgently needed liquidity to fund operational disruptions."
The NY Fed writes, "In light of these events, on March 17, the Federal Reserve announced the CPFF. The CPFF is a temporary liquidity facility authorized under Section 13(3) of the Federal Reserve Act. It is funded with loans from the Federal Reserve Bank of New York and includes a $10 billion equity investment from the U.S. Treasury's Exchange Stabilization Fund. The facility was announced on March 17 and began its operations on April 14. The CPFF uses a structure that is similar to the CPFF facility introduced in the wake of the collapse of Lehman Brothers in fall of 2008.... The CPFF both supports commercial paper liquidity in the short run, by providing highly rated issuers with an alternative outlet for their current commercial paper issuance, and in the longer run, as both issuers and investors can be more confident about participating in the market knowing that issuers will be able to roll over outstanding commercial paper. By setting the rate at which it will purchase commercial paper at a premium to 'normal' market pricing, the CPFF stands as a lender of last resort for the A1/P1 commercial paper market, with take-up expected to dissipate as market conditions normalize."
They tell us, "The current incarnation of the facility is designed to work in concert with the Money Market Mutual Fund Liquidity Facility (MMLF). By allowing issuers to buy back outstanding commercial paper and re-issue using the CPFF, the CPFF reduces the strain placed on money market funds invested in commercial paper. At the same time, by providing liquidity support to money market funds, the MMLF mitigates fire-sale dynamics, supporting commercial paper liquidity."
The blog adds, "While the facility only accepts commercial paper from issuers rated A1/P1 as of the facility announcement date, by stabilizing the A1/P1 market the facility has had a positive impact on market functioning and liquidity for lower-rated issuers as well.... As with the A1/P1 market, the shortest maturity spreads reacted immediately, with the spread on nonfinancial commercial paper declining from 311 bps on March 17 to 87 bps on April 16, and the spread on financial commercial paper declining from 123 bps on March 17 to 5 bps on April 16. The reaction of longer maturity spreads has been more sluggish."
Finally, it says, "Inspecting the A1/P1 nonfinancial issuers in greater detail, we can examine whether market pricing for issuers in industries more likely to be directly affected by the COVID epidemic -- such as airlines, department stores, restaurants, and hotels -- has evolved in the same way as for issuers less likely to be directly affected.... [A]lthough spreads on one-week paper have declined for both sets of issuers since the facility announcement, the decline in spreads for more directly affected issuers has been more modest. The facility thus achieves its twin goals of supporting overall commercial paper market liquidity while allowing market participants to differentially price issuers with different risk profiles."
