ICI says in a release that, "Retirement Assets Total $28.7 Trillion in First Quarter 2020," and accompanying data tables show that money funds held in retirement accounts total $549 billion, or 13%, of the total $4.337 trillion in money funds. MMFs represent just 2.9% of the total $18.881 trillion of mutual funds in retirement accounts. The release says, "Total US retirement assets were $28.7 trillion as of March 31, 2020, down 11.9 percent from December 31, 2019. Retirement assets accounted for 33 percent of all household financial assets in the United States at the end of March 2020." We review this latest quarterly update, and quote from two other articles on money funds and cash investing, below.
It continues, "Assets in individual retirement accounts (IRAs) totaled $9.5 trillion at the end of the first quarter of 2020, a decrease of 13.7 percent from the end of the fourth quarter of 2019. Defined contribution (DC) plan assets were $7.9 trillion at the end of the first quarter, down 12.3 percent from December 31, 2019. Government defined benefit (DB) plans -- including federal, state, and local government plans -- held $5.9 trillion in assets as of the end of March 2020, an 11.1 percent decrease from the end of December 2019. Private-sector DB plans held $3.2 trillion in assets at the end of the first quarter of 2020, and annuity reserves outside of retirement accounts accounted for another $2.2 trillion."
The ICI tables also show money funds accounting for $370 billion, or 9%, of the $4.066 trillion in IRA mutual fund assets and $179 billion, or 4%, of the $4.219 trillion in defined contribution plan holdings. Among the DC plan holdings, $120 billion is in money fund assets, making up 4% of the total $3.297 trillion in 401(k) plan mutual fund assets. Money funds saw $88 billion of inflows in Q1'20 into retirement accounts vs. outflows of $148 billion for all long-term funds. (IRAs accounted for $55 billion of the MMF inflows while DC plans accounted for $33 billion.) Money funds in non-retirement account variable annuities totaled just $32 billion, or 3% of the $1.088 trillion of mutual funds in these VAs.
In other news, Euromoney published a piece entitled, "Money markets plan for post-pandemic resilience." They write, "As the coronavirus pandemic wreaked havoc in financial markets around the world, the normally sleepy world of money market funds was roaring into life. While cash poured into government funds in March, prime funds saw a stampede for the exits. In the fortnight between March 11 and March 25, investors yanked $139 billion from prime money market funds, the largest two-week spell of outflows since September 2016, according to data from the Investment Company Institute."
The article continues, "As governments across Europe went into lockdown, fund operations were tested to their very limits -- in part because many business continuity plans failed to anticipate the severity of such a crisis. One spokesperson at a UK-based investment platform reflects that: 'If you look at the most common disaster recovery plans of all big businesses -- particularly those that are registered with the stock exchange -- we have fantastically comprehensive plans, including how we can relocate our operations to different disaster recovery sites very quickly. But losing all of our sites, and potentially having to have all of our people working from home, is just unprecedented.'"
They quote David Callahan, head of money markets at Lombard Odier Investment Managers, "One of the challenges of remote working is that normally my colleague and I are sitting next to each other and we talk; now we’re having to type in IB Chat all day, and it takes a lot of time.... We have to make sure we're on the same page so that we don't make an operational or strategic mistake, so that's a bit of a handicap in terms of efficiency. It highlights how important proximity is."
Euromoney also quotes Calastone's Ed Lopez, who comments, "If your operation is fairly good and you've got built-in checks and balances around manual processes, when you're all sitting on the same floor of the same building that is one thing, but if you're all dispersed, even working together through a secure VPN or other system, that may be a risk.... Automation definitely removes some of the friction and risk inherent in manual processes, and it obviously supports a work-from-home environment. One consequence of what's happening now is that people are going to have to automate more and more -- and more robustly -- because you've got fewer people in an office."
The article adds, "Almost 75% of treasurers who are members of the Association of Corporate Treasurers said their organizations are automating at least some treasury functions, according to ACT's 2019 Business of Treasury report. But while more corporate treasurers are using technology, Lopez notes that many money fund investors still have to perform the majority of tasks manually.... In a post-pandemic world, technology and automation is going to become an integral part of both fund providers' and investors' business continuity plans, as organizations seek ways to become more operationally resilient and avoid the turmoil recently experienced."
Finally, yesterday's Wall Street Journal featured, "Goldman Goes Main Street With Push Into Corporate Bank Accounts." They wrote, "Goldman Sachs Group Inc. ... is trying to become a player in the staid business of managing corporate cash. The firm will soon begin marketing new bank accounts for corporate treasurers and chief financial officers to manage and move their cash. It is Chief Executive David Solomon's latest move to transform the bank, and it comes during a time of economic uncertainty and market turmoil that has clouded the outlook for companies big and small."
The Journal piece states, "Goldman is taking on the global commercial banks that dominate the business. Citigroup Inc., JPMorgan Chase & Co. and HSBC Holdings HSBC PLC, among others, move trillions of dollars for giant corporations and small businesses to help them meet payroll, pay vendors and manage global currency risk. Banks earned $32 billion from providing such services last year, according to research firm Coalition."
It adds, "Cash-management businesses earn money in three ways: by lending out corporate deposit dollars, through payment fees, and by charging customers to exchange currencies.... Goldman is currently paying between 0.10% and 0.35% interest on its customers’ deposits; companies, unlike consumers, can negotiate for a better deal. Goldman aims to bring in $50 billion of deposits and $1 billion in annual revenue from cash-management by 2025, President John Waldron told investors in January."
