Earlier this week, the Association for Financial Professionals hosted a webinar entitled, "2020 AFP Liquidity Survey: Maintaining Course in Uncharted Waters" which featured AFP's Tom Hunt, Crane Data's Pete Crane, Invesco's Laurie Brignac and Marsh & McLennan's Ferdinand Jahnel. The webinar was a companion to the 2020 AFP Liquidity Survey." Below, we quote some of Crane's comments from the event. (Watch for more excerpts from other panelists in coming days, and see our June 23 News "AFP's 2020 Liquidity Survey Shows Safety, Bank Relationships Still Key," and our June 29 News, "More 2020 AFP Liquidity Survey: Ratings, Yield Important; ESG Not Yet.")
Crane comments, "This year, everything changed on a dime. It was in March, when all of a sudden the realization of the coronavirus dawned on everyone. Never have we seen anything like this, where ... everyone from the largest governments and corporations in the world to the smallest individuals were faced with the problem of maybe needing two month's worth, or two year's worth, of cash. You saw this mad scramble that was unprecedented with a trillion plus dollars, about $1.2 trillion, going into money market funds in March and April, and $1.4 trillion into bank deposits. The cash buildup was just dramatic."
He continues, "You saw it then stabilize in May, and then in June, you started seeing money fund balances start coming down. Bank deposits have not, they're still growing.... I'm going to talk a little bit about assets here, and then I'll just hit yields and some current issues. But you see on the chart here with `cash, basically money funds and deposits, breaking $16 trillion. You see the super spike up."
Crane says about, "The drawdown of cash, what's really wreaking havoc on models are the tax dates. I know in July, I paid a quarterly tax bill [that] was two bills in one. So, July had this monster tax payment ... and I assume for a lot of businesses and other things. You had deferred taxes from April suddenly hit in July. Then September is pretty close here. September 15th and 30th are always seasonally weak for money funds. You get tax payments, end of quarter and stuff. When this all happened in March, you had that quarterly tax payments, quarter end, sort of start the whole thing. So, I would expect we're going to be week into September. But then in the fourth quarter money funds normally see assets go on a tear. October, November and December are three of the four strongest months of the year for inflows. Whether that was robbed and moved into earlier in the year, is unclear. So seasonal effects may have been shifted and changed."
He tells the AFP webinar, "Basically, what we saw in March/April was, I won't call it a run, but a brisk walk away from prime funds. About $150 billion left.... We've more than recovered that and then the giant trillion went into government funds. On top of that, you can see the overall assets spike.... If you look at ICI or iMoneyNet's numbers, they're saying it's $4.6 trillion; if look at Crane Data or the SEC's numbers, they're just under $5 trillion, $4.9 trillion, because we count some funds that they don't. Going forward, as I said, you're going to see a little bit of a dip, but I would expect asset levels to remain strong. What's really going to eventually put the pressure on money fund assets and perhaps on bank deposits, too, is the spend down. But what people underappreciate is just how big a factor on cash 'stopping spending' is -- that corporations and individuals have frozen their spending. What that's doing is allowing big chunks of cash to build up, and the government payments, of course, are distorting things and inflating the numbers."
Crane states, "Now, the big issue is zero yields in general -- money funds on average are now at 0.06%. Institutional funds, you can still get a yield in the teens, but everything is being crushed onto zero. Luckily, the huge amount of T-bills being issued is keeping rates positive and above negative.... Fee waivers are a big deal on the retail side, where money funds are basically having to cut their expenses by a percentage, or even in half in some cases, to keep yields staying above zero. Right now, two thirds of the funds out there are yielding 0.00 percent to 0.01 percent, and one third of the assets. This is a simple average of asset weight, the big dollars are, of course, in lower expense funds. The institutional assets have lower expenses so, they're not in that waiver boat nearly as much or if at all, as the retail funds."
He explains, "What you are seeing is this cascade. Eventually, you saw it in 2009 through 2015.... Investors don't mind 0.25%, they don't mind 0.5%, but when you hit zero they move. And so, you're seeing assets move from government funds out. You're seeing prime funds still gain assets. You're seeing ultra short bond funds and anything with yield starting to gain assets. And so that gradual migration is occurring. But the vast majority of the assets are stubbornly dug in at zero."
Crane also comments on Federated's Social MMF launch, "Social and ESG had been a budding and growing segment, until the coronavirus hit and sort of flipped things on its head. A mere oddity of the timing and events that these ESG funds have been prime funds in the main. Credit and Prime sort of took a blow and may see future regulations.... But government funds that are trading through minority-, women-owned or veteran-owned brokerages and various guises are out there. You have Federated launching one, Goldman's got one, Dreyfus has one. And then on ESG front, you have BlackRock and State Street, DWS and Morgan Stanley with offerings out there. So, there are still definitional issues, there are operational and volume issues, they are still relatively small. But it's certainly an area where things are growing rapidly."
He also says regarding "credit issues," "The government support has artificially supported and inflated everything. Nothing has blown up, and bankruptcies have been mercifully few, but they're coming. You can't have this ugly a downturn in the economy without some collateral damage and some carnage. And the government can only support it for so long, and the trillions of dollars they're throwing out there, I'm just in disbelief that the markets don't seem to care about those numbers. But credit issues and blow ups are going be something to watch out for. Then [regarding] future regulations, a lot depends on the election. I doubt we're going to see radical change or change anytime soon. But that is something people are talking about, too. Finally, consolidation I will throw out there too."
As another reminder, we'll be hosting our own event, "Crane's Money Fund Webinar: Mini Fund Symposium" on August 26, 2020, 1-4pm ET. Crane Data's Peter Crane will host a 3-hour series of sessions involving money market mutual funds and money market securities. Segments will include: "The State of the Money Fund Industry;" "Strategists Speak: Treasury, Fed & Repo," with BofA's Mark Cabana and Barclays' Joe Abate; "Regulatory & ESG Update" with Dechert's Stephen Cohen; and, "Major Issues in Money Funds," with BNY Mellon/Dreyfus' Tracy Hopkins and J.P. Morgan Asset Management's John Tobin. A virtual "cocktail party" will follow.
Finally, in other news, BlackRock liquidated its FFI Treasury Money Fund (MLTXX) this week. Its filing tells us, "On May 12, 2020, the Board of Trustees of Funds For Institutions Series, on behalf of the Fund, approved a proposal to liquidate and terminate the Fund subject to a Plan of Liquidation and Termination. The Plan of Liquidation and Termination will be presented to the shareholders of the Fund and must be approved by the requisite number of shares of the Fund before a liquidation and termination of the Fund can occur."
They add, "A special meeting of shareholders of the Fund to consider the Plan of Liquidation and Termination is expected to be held on August 7, 2020. The record date for the special meeting is June 11, 2020. If approved by shareholders of the Fund, the liquidation date for the Fund is expected to be on or around August 11, 2020. Effective June 1, 2020, BlackRock Advisors, LLC will waive or reimburse all operating expenses of the Fund, including all management fees, administration fees and miscellaneous other expenses (excluding dividend expense, interest expense and acquired fund fees and expenses), as applicable."
