Fidelity Investments, the largest manager of money market funds, sent an e-mail to clients Friday with the Subject, "Fidelity Institutional Prime Money Market Funds Liquidation." They write, "We have decided to liquidate our two institutional prime money market funds: Fidelity Investments Money Market (FIMM) Prime Money Market Portfolio and Fidelity Investments Money Market (FIMM) Prime Reserves Portfolio. Both funds will remain fully accessible to investors until their liquidation on or about August 14, 2020. There are no restrictions on investments in or redemptions from the funds until, as part of the liquidation process, the funds close to new investments as of the close of business on August 12, 2020. It is important to note that this decision does not affect any of our other money market funds -- institutional or retail -- and there is no need to take immediate action. We are committed to working with our institutional clients to determine alternative liquidity investment products that best suit their needs by August 12."

The announcement continues, "Our decision to liquidate these two funds was made after thoughtful review and consideration of our experience with investor behavior in institutional prime money market funds during periods of market stress, evolving institutional investor preferences, and our broader money market business. We are choosing to exit the institutional prime segment of the marketplace because we believe we can better meet institutional investors' needs with other cash management products."

A companion Q&A asks, "Does this decision affect any other Fidelity money market funds or Fidelity's money market funds business?" Fidelity answers, "No. Our decision to liquidate our two institutional prime money market mutual funds is specific to these two funds. This decision does not affect any of our other money market funds or any other part of our money market fund business. We have a deep, longstanding and ongoing commitment to our institutional and retail money market fund investors. We continue to offer a broad range of choices for our investors' cash investments, including government, retail municipal, and retail prime money market funds, as well as low duration bond funds and separately managed accounts."

It tells us, "Shareholders will be able to exchange their shares into other Fidelity funds, redeem their shares, or remain in the fund until August 14, 2020, at which time securities will be liquidated and posted to client accounts as cash. The funds will close to new investments on or about August 12, 2020, two days prior to the liquidation. Shareholders in workplace retirement plans will have the opportunity to redeem their assets ahead of the liquidation and move them to another investment option offered by their retirement plan. If retirement plan shareholders have not redeemed and moved their fund assets upon liquidation, cash balances will be invested as directed by the plan sponsor or absent such direction, in the plan's default option."

Fidelity comments, "There is no immediate need to take action. We look forward to working with our institutional prime fund investors between now and August 12, as they determine the alternative cash investment product that works best for them. We have a broad range of options for investors who currently use institutional prime money market funds to consider, including government, retail municipal, and retail prime money market funds as well as low duration bond funds and separately managed accounts.... Shareholders of FIMM Prime Money Market Portfolio and FIMM Prime Reserves Portfolio will be allowed to exchange into comparable classes of the FIMM Portfolios and the Institutional Class of Fidelity Conservative Income Bond Fund, even if the amount of the exchange is below the investment minimum for that class." Tickers for FIMM Prime Reserves Portfolio include: FIDXX, FDOXX, FDVXX, FIPXX and FDIXX, and tickers for the FIMM Prime Money Market Portfolio include: FDPXX, FEPXX, FHPXX and FFPXX.

The Fidelity Q&A also asks, "What is happening to the portfolio managers, Michael Widrig and Maura Walsh?" They answer, "Michael Widrig and Maura Walsh will continue to co-manage the funds until liquidation and, thereafter, will retain their other existing portfolio management responsibilities." and "Do shareholders need to approve the liquidation? No, the fund's Board of Trustees approved the liquidation and it is not subject to shareholder approval."

The Q&A also discusses the Fidelity Treasury Money Market Mutual Funds, and tells us, "There is no connection between our decision to close three Treasury money market funds to new investors at the end of March and the liquidation of our institutional prime money market funds; however, both decisions reflect the fact that the interests of our fund shareholders are always a priority."

The statement adds, "Our decision to close three Treasury money market funds to new investors at the end of March was related to lower Fed rates. With the federal funds rate and yields on Treasury securities at historic lows, by limiting inflows into these Treasury money market funds, we continue to be successful in achieving our goal of preserving the returns of existing fund shareholders. Restricting inflows has helped reduce the number of new Treasury securities that the funds have needed to purchase, which is important because the newer issues generally have lower yields than the funds' existing holdings. We are continuing to monitor market conditions and yields on these Treasury funds and are pleased to report that we expect to re-open the three funds to new investors in the coming months."

Fidelity Fixed Income President Nancy Prior tells us, "As you know, we have two publicly available Institutional Prime funds, FIMM Prime and FIMM Prime Reserves. Combined, they're under $14 billion and represent less than 2.0% of our assets.... A lot of a lot of this decision [was made based on] investor behavior in these institutional prime funds.... Our internal funds, you know, we run those with significantly higher levels of liquidity. We also know very well who the shareholders are in those funds. So [there will be] no change at all on the internal prime funds [and], we have a very large presence in the Retail Prime space, [about] $120-125 billion. [There's also] no change at all on the government side. So this is really limited to just these two institutional prime funds."

She explains, "It really was three factors that that led to this for us. The first was our experience, as well as the industry's, with investor behavior in institutional prime funds, particularly during periods of stress. You know, we've consistently seen this behavior time and again. Back in March, Institutional Prime lost over 30% of their assets. And, you know, we focus very much on portfolio construction, aligned with how shareholders use the funds. So we have always managed our institutional prime funds with very high levels of liquidity. That has served our shareholders well, both in calm markets as well as volatile markets. Back in March of this year, the liquidity on both of these institutional prime funds remained above 40 percent while experiencing the redemptions."

Prior comments, "For us, this is about our view that the cash management needs of institutional investors can be better met with Government funds.... Institutional investors themselves have shown their preference for Govt funds over Prime funds.... Since the [2016 reforms], the entire industry has seen declining assets in Institutional Prime. At its peak back in 2011, Institutional Prime had over 40% of the industry's assets ... now [we're] down to less than 6% of total industry assets, right around that $300 billion dollar mark. So investors have spoken with their feet and have shown their preference for govt funds over institutional prime funds."

Finally, she adds, "But I'll tell you, we are as committed as ever to the money market business, to our institutional and retail shareholders in that business. You know, this is going to allow us to continue to invest in people and technology and allocate our resources to that portion of the money market business that's in greatest demand by all of our investors, as well as some of our broader fixed income initiatives. So this is, again, liquidating these two funds, less than two percent of our assets, and no impact on any other part of our business." (For more, see our May 20, 2020 News, "Northern Liquidating Prime Obligs; NY Fed on PDCF; Weekly Port Holds," and our Feb. 2, 2015 News, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt.")

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