Investment Company Institute President and CEO Paul Schott Stevens commented on money market mutual funds and this spring's coronavirus crisis during ICI's 2020 Tax And Accounting Conference." In his keynote, "Delivering on the Promises We Have Made to Investors," Stevens explains, "Policymakers must have a clear and accurate picture of what happened during the crisis, including the experience of funds and their investors. To this end, ICI is conducting a comprehensive examination of developments in fixed income and money markets in March and early April. We hope to release that examination later this fall. It will, among many other things, demonstrate that the US Treasury market -- the deepest and most liquid market in the world -- was the very first to seize up, and showed enormous strain several days before money market or bond funds came under redemption pressure. The data also show that bond fund redemptions were a small share of those funds' assets -- about 5 percent -- and did not drive or exacerbate market volatility." (Note: ICI's Stevens will also keynote our next virtual event, Crane's Money Fund Symposium Online, which will be Tuesday, October 27 from 1-4pm ET. To register, click here.)
Stevens explains, "In 2008, after more than a dozen major banks had failed, the Reserve Primary Fund became the second money market fund in history to 'break the buck.' In response, ICI's Executive Committee called for the Institute to investigate, to face up to any structural or regulatory factors that might have made money market funds vulnerable, and to offer constructive policy recommendations to regulators, even at some cost to fund sponsors and their products. The result was the Money Market Working Group, a group of top executives and staff from ICI member firms. Chaired by Vanguard's Jack Brennan, that group produced a significant report in March 2009. In that report, the Institute suggested substantial reforms to SEC Rule 2a-7 designed to make money market funds stronger and more resilient for investors -- new liquidity requirements, new limits on the maturity of securities these funds hold, stronger credit analysis and know-your-customer standards, and more options for fund boards to deal with heavy redemptions."
He comments, "Less than a year after the Money Market Working Group Report came out, the SEC had adopted package of money market reforms rooted in the Report's recommendations -- the first major regulatory reforms after the global financial crisis. These changes to Rule 2a-7 were completed six months before Congress enacted its response to the crisis, the Dodd-Frank Act."
Stevens continues, "The Money Market Working Group report, and the SEC reforms that followed, greatly advanced the debate over post-crisis reforms but did not end it. In view of the damage caused by the crisis, policymakers focused on how to avoid a recurrence, emphasizing the need to address risks that could threaten the stability of the broader financial system. Initial reforms focused on the source of the global financial crisis: the banking system. But they did not stop there. Policymakers also focused on non-bank institutions, including asset managers and regulated funds."
He adds, "The bodies that have led this effort since 2009, dominated by central bankers, understandably take a banking-centered view of the world. They called mutual funds and other capital-market participants 'shadow banks,' a characterization that was intentionally pejorative and wholly inaccurate. Well, as I have said so many times, regulated funds aren't banks, and they aren't in the shadows. Indeed, ICI has spent the last decade engaged in a policy debate that illustrates another of our industry's qualities: We stand on principle -- even when that's difficult, unpopular, or risky." (See also, The Wall Street Journal's "Money-Market Fund Rules Likely Fall Short, Policy Makers Say," Reuters' "Money market turmoil in March shows past reforms may be insufficient - U.S. Treasury official," and U.S. Treasury Deputy Secretary Justin Muzinich's comments on money market funds at the 2020 U.S. Treasury Market Conference.)
The ICI also released its monthly "Trends in Mutual Fund Investing" and its "Month-End Portfolio Holdings of Taxable Money Funds" for August 2020 yesterday. The former report shows that money fund assets decreased by $56.7 billion to $4.523 trillion in August, after decreasing $55.4 billion in July, $133.5 billion in June and increasing $31.8 billion in May and $399.4 billion in April. For the 12 months through July 31, 2020, money fund assets have increased by a breathtaking $1.230 trillion, or 39.6%.
ICI's monthly "Trends" release states, "The combined assets of the nation's mutual funds increased by $649.54 billion, or 2.9 percent, to $22.70 trillion in August, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $71.32 billion in August, compared with an inflow of $69.27 billion in July.... Money market funds had an outflow of $56.80 billion in August, compared with an outflow of $55.36 billion in July. In August funds offered primarily to institutions had an outflow of $49.16 billion and funds offered primarily to individuals had an outflow of $7.63 billion."
ICI's latest statistics show that both Taxable MMFs and Tax Exempt MMFs lost assets last month. Taxable MMFs decreased by $55.2 billion in August to $4.402 trillion. Tax-Exempt MMFs decreased $1.5 billion to $120.3 billion. Taxable MMF assets increased year-over-year by $1.171 trillion (36.2%), while Tax-Exempt funds fell by $14.5 billion over the past year (-10.8%). Bond fund assets increased by $66.4 billion in August (1.4%) to $4.936 trillion; they've risen by $366.4 billion (8.0%) over the past year.
Money funds represent 19.9% of all mutual fund assets (down 0.9% from the previous month), while bond funds account for 22.7%, according to ICI. The total number of money market funds was 352, down four from the month prior and down from 367 a year ago. Taxable money funds numbered 272 funds, and tax-exempt money funds numbered 80 funds.
ICI's "Month-End Portfolio Holdings" confirms a jump in Repo a modest increase in Treasuries and another drop in Agencies last month. Treasury holdings in Taxable money funds remain in first place among composition segments since surpassing Repo in April. Treasury holdings increased by $2.7 billion, or 0.1%, to $2.281 trillion, or 51.8% of holdings. Treasury securities have increased by $1.450 trillion, or 174.4%, over the past 12 months. (See our September 11 News, "Sept. MF Portfolio Holdings: Repo Jumps; Agencies, CP, CDs Decline.")
Repurchase Agreements were in second place among composition segments; they increased by $38.8 billion, or 4.1%, to $993.5 billion, or 22.6% of holdings. Repo holdings have dropped $243.9 billion, or -19.7%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $41.0 billion, or -5.2%, to $745.4 trillion, or 16.9% of holdings. Agency holdings have risen by $83.5 billion, or 12.6%, over the past 12 months.
Certificates of Deposit (CDs) stood in fourth place; they decreased by $5.1 billion, or -2.3%, to $212.9 billion (4.8% of assets). CDs held by money funds shrunk by $58.2 billion, or -21.5%, over 12 months. Commercial Paper remained in fifth place, down $11.5 million, or -5.8%, to $187.6 billion (4.3% of assets). CP has decreased by $43.8 billion, or -18.9%, over one year. Other holdings decreased to $34.1 billion (0.8% of assets), while Notes (including Corporate and Bank) were down to $6.1 billion (0.1% of assets).
The Number of Accounts Outstanding in ICI's series for taxable money funds increased by 371.3 million to 39.685 million, while the Number of Funds was down four at 272. Over the past 12 months, the number of accounts rose by 3.4.008 million and the number of funds decreased by 14. The Average Maturity of Portfolios was 43 days, unchanged from July. Over the past 12 months, WAMs of Taxable money have increased by 12.
