Last month, J.P Morgan Asset Management launched a series of "Audio Commentaries" focused on "Hear[ing] from Global Liquidity Portfolio Managers about Quarterly Topics of Interest." The initial set of updates feature segments from money fund portfolio managers Kyongsoo Noh, Adam Ackermann, Robert Motroni and James McNerny discussing global liquidity, the Fed, floating NAVs and Managed Reserves (JPM's conservative ultra-short strategies), respectively. We briefly review these, as well as a new Podcast from Moody's Investors Service, below. (Note: JPMorgan AM's John Tobin will speak at our upcoming "Crane's Money Fund Webinar: Mini Fund Symposium," which will be held August 26, 2020, 1-4pm EDT.)
On the first podcast, JPM's K-Noh says, "We do expect generic government money market funds to have near zero net yields by late this summer. We also expect generic prime money market funds yields to decline as a result of ZIRP, but we believe that there will be a positive spread of about 10-15 bps between generic prime and generic govie yields when govie yields hit their floor.... The Fed is buying corporate bonds and shares of ETFs that contain corporate bonds in order to narrow spreads and promote liquidity in the corporate debt markets.... These purchases are driving up prices of high quality front end credit products, which are precisely the kinds of investments that many short term fixed income investors focus on."
On the second recording, Ackermann states, "The Federal Reserve has acknowledged that its measures were effective in calming stress in the funding markets and rebuilding reserves to more robust levels that ensure healthy functioning of US capital markets. This should be important to and comforting for any market participant. Second, in an environment where liquidity levels are elevated due to an abundant amount of cash in the financial system and rates are close to zero, investors are keenly focused on the income they earn on their most precious commodity – their cash. We expect that the adjustments by the Federal Reserve to its repo program will result in marginally higher rates across USD Short-Term Fixed Income complex."
Motroni tells us in his segment, "Since the inception of Floating NAVs or FNAVs, movements have generally been incremental and slow. Over time, we've seen the FNAVs of institutional prime funds deviate a few bps on either side of a dollar, but we ultimately view the natural state of Institutional Prime funds FNAVs to reside +/- 1 bp on either side of 1.0000 given the short duration profile and general low price volatility of the underlying assets. [But] over the last few months, due to increased market volatility related to COVID-19 and Fed related moves, the industry has seen peak to trough movements exceeding almost 30bps in some funds."
He adds, "General market volatility did lead to some short-term relative volatility in the FNAVs of prime money market funds. However, FNAVs quickly returned to pre-shutdown levels. Overtime, as higher legacy positions roll off of portfolios and are reinvested closer to market levels, we anticipate Fund FNAVs to return to their natural state of a bp on either side of a dollar, thus continuing to realize one of their main objectives of principal stability."
Finally, Managed Reserves' McNerny says, "In front end flows, we saw over $1 trillion make its way into U.S. money market funds in March and April. With the Fed keeping overnight rates at the near-zero bound, that means there is a lot of money now on the sidelines earning yields very close to zero. Because of that, and the confidence returned to the ultra-short and short-term credit markets, we've seen investors returning to the ultra-short space, willing to move modestly out the curve in search of yield. In April and May, we saw over $10B in retail inflows into U.S. ultra-short funds, and we anticipate that number to be higher when the final quarterly metrics are announced. We also expect that trend to continue given our low-for-long outlook on rates, lending further technical support to risk asset valuations in the ultra-short space."
In related news, a press release entitled, "J.P. Morgan Asset Management and Hazeltree Partner" tells us, "J.P. Morgan Asset Management and Hazeltree, the leading provider of cloud-based treasury solutions for investment managers, have partnered to deliver a unique and integrated cash and liquidity management platform to private equity, private credit, real estate and infrastructure funds."
It continues, "J.P. Morgan Asset Management clients are now able to access Hazeltree's technology to effortlessly manage multi-bank relationships across their entire fund structures and seamlessly access J.P. Morgan's liquidity products. This enables private fund managers to quickly onboard their complex legal entities onto J.P. Morgan's liquidity platform and operationally facilitates the increased transactions workload across various counterparties in an efficient and highly controlled manner."
JPMAM's release tells us, "This partnership provides clients with unlimited transparency into all cash and liquidity accounts, across all banking relationships, enabling fund managers to easily track and forecast cash balances. Additionally, clients can easily configure robotic automation to calculate excess, investable cash, and recommend cash investment decisions based on user-defined parameters and constraints."
John Donohue, CEO of Asset Management Americas and Head of Global Liquidity for JPMAM, comments, "Managing liquidity has never been more challenging or imperative. That is why we are dedicated to offering the best digital solutions for our clients. By partnering with Hazeltree we are able to provide clients with secure, immediate access to a suite of investment products with full transparency across their global portfolio."
Sameer Shalaby, President and CEO of Hazeltree, adds, "“Many firms still rely on spreadsheets and office tools to manage cash across their large number of legal entities and a multitude of banking relationships. Our integrated platform not only centralizes all cash and liquidity holdings interactions with consistent controls and workflows, but the opportunity exists to easily invest excess cash at a variety of cash products with J.P. Morgan." The release adds, "The newly integrated offering is now available to J.P. Morgan Asset Management and Hazeltree clients."
Another press release explains, "Moody's launches 'Focus on Finance' podcast series; first episode discusses cyber risk, US prime money market funds." It explains, "Moody's Investors Service has launched 'Moody's Talks - Focus on Finance,' a new podcast series looking at the drivers of credit trends in the banking, asset management and insurance industries."
Moody's tells us, "The podcast will feature contributions from Moody's analysts globally, who will share their insights into the economic, tech and social forces that are shaping the creditworthiness of financial institutions. They will be discussing short-term market events as well as bigger structural trends. Banks and other financial institutions around the world are racing to adapt their business models as the coronavirus pandemic affects their businesses. While much of the impact will be short term, our analysts are identifying the long-lasting structural changes of this experience that will be paramount in shaping the future of finance."
They explain, "In the first episode of 'Focus on Finance,' funds and asset management analyst Steve Tu explains why institutional prime money market funds could fade away over time, and banking analyst Alessandro Roccati takes a deep dive into the increasing cyber threat that banks and other financial institutions face.... Listen to the first episode here: www.moodys.com/FinancePodcastEp1." (See also our August 6 Link of the Day, "Moody's Hits Prime Money Funds.")
