Money market fund assets inched lower in the latest week, their fifth weekly decline in a row. Since the week ended May 20, assets have declined by $106.3 billion, but this follows 15 straight weeks of inflows (during which time assets increased by $1.175 trillion). ICI's latest weekly "Money Market Fund Assets" report says, "Total money market fund assets decreased by $1.58 billion to $4.68 trillion for the week ended Wednesday, June 24, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $1.06 billion and prime funds increased by $1.07 billion. Tax-exempt money market funds decreased by $1.59 billion." ICI's stats show Institutional MMFs increasing $720 million and Retail MMFs decreasing $2.3 billion. Total Government MMF assets, including Treasury funds, were $3.786 trillion (80.8% of all money funds), while Total Prime MMFs were $765.8 billion (16.4%). Tax Exempt MMFs totaled $131.1 billion, 2.8%.
Money fund assets are up an eye-popping $1.051 trillion, or 28.9%, year-to-date in 2020, with Inst MMFs up $860 billion (38.0%) and Retail MMFs up $191 billion (13.9%). Over the past 52 weeks, ICI's money fund asset series has increased by $1.491 trillion, or 46.7%, with Retail MMFs rising by $331 billion (27.0%) and Inst MMFs rising by $1.159 trillion (59.1%).
They explain, "Assets of retail money market funds decreased by $2.31 billion to $1.56 trillion. Among retail funds, government money market fund assets decreased by $1.36 billion to $982.89 billion, prime money market fund assets increased by $147 million to $460.84 billion, and tax-exempt fund assets decreased by $1.09 billion to $117.03 billion." Retail assets account for exactly a third of total assets, or 33.3%, and Government Retail assets make up 63.0% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds increased by $722 million to $3.12 trillion. Among institutional funds, government money market fund assets increased by $300 million to $2.80 trillion, prime money market fund assets increased by $920 million to $304.95 billion, and tax-exempt fund assets decreased by $498 million to $14.04 billion." Institutional assets accounted for 66.7% of all MMF assets, with Government Institutional assets making up 89.8% of all Institutional MMF totals. (Note: Crane Data has its own separate daily and monthly asset series.)
In other news, J.P. Morgan writes in its "Mid-Week US Short Duration Update," about "Prime MMFs: Is this the start of a movement?" They explain, "Last week, news of Fidelity's decision to liquidate two of its prime institutional money funds surprised many money markets observers. This comes on the heels of news last month that Northern Trust will also be shuttering its prime institutional money fund. Both fund families are respected in the money market industry, and their decision to close their institutional prime funds has clearly sparked questions about whether this was a unique situation given the circumstances, or, if it could be the start of broader movement."
The piece continues, "To be fair, the prime institutional funds shuttered are very small. In aggregate, their assets under management totaled ~$13-14bn as of earlier this month, representing ~4% of the prime institutional market and an even smaller 1.7% across the entire prime fund space. Based on Crane Data, their gross yields were also very low -- in the high single-digits to midteens -- relative to other prime institutional funds that are currently yielding in the 0.30-0.50% range. Furthermore, from the fund managers' perspective, those funds represent only sliver of their broader MMF business. So in some ways, the managers consolidated their own money funds."
It tells us, "Going forward, it wouldn't surprise us if MMF consolidation took place both internally and externally. Small prime institutional MMFs are most susceptible in this regard as large and sudden outflows could easily prompt them to breach the 30% liquidity bucket -- something managers are keen to avoid. While this risk was more navigable before the Fed cut rates, the current low rate environment would seem to suggest a rather unbalanced risk-reward relationship, particularly given the behavior of institutional money."
JPM says, "The uncertainty as it relates to fund flows has resulted in prime institutional fund managers holding over 50% of liquidity (on average) compared to the 42% in early March, and thereby negatively impacting gross fund yields.... Furthermore, the prospect of more money fund reform, whatever it may be, only adds to the cost of running of a prime MMF. While large asset managers have both the capital and the liquidity to deal with the above issues, the new economics of the money markets may not apply to every fund in a family. Smaller funds within large fund families, as well as smaller fund families, may be targets for consolidation."
They add, "On the margin, this likely means a rotation of cash from prime institutional funds to government institutional funds, providing continued support to T-bills and repo in the money markets. Its impact on Libor is likely limited given the small nature of these funds and the fact that most funds are already operating at over 50% liquidity (i.e., investing in T-bills and repo and CP/CD that matures in less than 7 days)."
Finally, thanks to those who attended our Crane's Money Fund Webinar: Portfolio Holdings Update yesterday (and thanks to JPM's Teresa Ho for an excellent presentation! For those who missed it, register here to listen to the recording, or see our Money Fund Channel here and the Powerpoint here. (See the bottom of our "Content" page for all of our Webinar and conference materials.) Mark your calendars and watch for details on our next webinar, Crane's Money Fund Webinar: Portfolio Manager Perspectives, which will be held July 22 at 1pm, and bear with us as we ramp up our virtual event capabilities over the next couple of months.
