The SEC recently released its quarterly "Private Funds Statistics" report, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows overall Liquidity fund assets were down in the latest reported quarter (Q4'19) to $578 billion (down from $588 billion in Q3'19). The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from First Calendar Quarter 2018 through Fourth Calendar Quarter 2019 as reported by Form PF filers." Note: Crane Data believes many of these liquidity funds are securities lending reinvestment pools and other short-term investment funds.
The tables in the SEC's "Private Funds Statistics: Fourth Calendar Quarter 2019," the most recent data available, show 108 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), down 6 from the last quarter and down 11 from a year ago. (There are 65 Liquidity Funds and 43 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 36 Liquidity Fund advisers and 22 Section 3 Liquidity Fund advisers, or 58 advisers in total, down two from last quarter (down five from a year ago).
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $578 billion, down $10 billion from Q3'19 but up $5 billion from a year ago (Q4'18). Of this total, $292 billion is in normal Liquidity Funds while $286 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $583 billion, down $10 billion from Q3'19 and down $6 billion from a year ago (Q4'18). Of this total, $294 billion is in normal Liquidity Funds while $289 billion is in Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $62 billion is held by Private Funds (21.6%), $63 billion is held by Unknown Non-U.S. Investors (21.9%), $74 billion is held by Other (25.8%), $14 billion is held by SEC-Registered Investment Companies (4.8%), $8 billion is held by Insurance Companies (2.8%) and $4 billion is held by Non-U.S. Individuals (1.3%).
The tables also show that 73.6% of Section 3 Liquidity Funds have a liquidation period of one day, $273 billion of these funds may suspend redemptions, and $241 billion of these funds may have gates (out of a total of $514 billion). WAMs average a short 26 days (40 days when weighted by assets), WALs are 59 days (79 days when asset-weighted), and 7-Day Gross Yields average 1.5% (1.7% asset-weighted). Daily Liquid Assets average about 50% (40% asset-weighted) while Weekly Liquid Assets average about 61% (52% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (48.8%) are fully compliant with Rule 2a-7.
In other news, Federated Hermes' Deborah Cunningham urges a broader view of the money fund business in her latest piece, "Viewing the forest." She writes, "It's time for some perspective about the money markets. The historic upheaval in our health and the economy has driven the financial sphere to an almost absurd speed. On occasion the deliberate pace of liquidity products has moved in double time. This new course of business has most of the industry stressing out whenever a new issue arises. Of course, diligence is paramount. But looking up to survey the landscape also is warranted."
Cunningham continues, "Lately it seems many in the financial industry have forgotten we are in a global pandemic, instead viewing troubling events as the acceleration of trends perceived before the coronavirus arrived. A few moves within the money markets, such as some fund closures or shifts, have caused concern about the entire space. But it is natural that the seismic shock would lead some firms to make decisions they hadn't considered pre-Covid. The real story is how money funds showed their mettle in the dark days of March and that they have served investors well ever since."
She tells readers, "For all the worry about the prime space, industry assets are only down slightly over 6% this year. A sizable portion of the outflows stem from typical activities, such as investors moving excess cash they put on the sidelines for riskier bets or businesses withdrawing money for operations. Without prime funds, corporations and banks would have to find other funding sources, likely at a higher cost, and investors enjoy the attractive yields relative to deposit products. Prime will remain a player."
Cunningham adds, "Government product yields should rise when Congress passes a stimulus package (which it will eventually) and when the pandemic's conclusion reverses the massive flight to safety. And the industry reorganization in the municipal market is related to the changes in the tax code, which is always subject to political winds. Yields here are elevated, and supply will not be an issue -- not when many states likely will increase issuance even if they receive more federal aid. The point is, short-term conclusions and long-term speculation are suspect at the moment.... Clearly I am an advocate for the money market industry, and Federated Hermes is a leader in liquidity management. But everyone brings their own bias, and taking a step back to see the bigger picture is something all should do."
Finally, money market fund yields continue to bottom out just above zero -- our flagship Crane 100 inched down one bps in the last week to 0.03%. The Crane 100 Money Fund Index fell below the 1.0% level in mid-March and below the 0.5% level in late March. It is down from 1.46% at the start of the year and down from 2.23% at the beginning of 2019. Over two-thirds of all money funds and over a third of MMF assets have since landed on the zero yield floor, though many continue to show some yield.
According to our Money Fund Intelligence Daily, as of Friday, 10/2, 606 funds (out of 849 total) yield 0.00% or 0.01% with assets of $2.318 trillion, or 48.9% of the total. There are 193 funds yielding between 0.02% and 0.10%, totaling $1.835 trillion, or 38.7% of assets; 47 funds yielded between 0.11% and 0.25% with $502.5 billion, or 10.6% of assets; only 3 funds yielded between 0.26% and 0.50% with $83.1 billion in assets. No funds yield over funds yield over 0.30%.
The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 670), shows a 7-day yield of 0.03%, unchanged in the week through Friday, 10/2. The Crane Money Fund Average is down 44 bps from 0.47% at the beginning of April. Prime Inst MFs were flat at 0.07% in the latest week and Government Inst MFs were flat at 0.02%. Treasury Inst MFs were unchanged at 0.02%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.03% (unchanged), Tax-exempt MF 7-day yields were also unchanged at 0.02%. (Let us know if you'd like to see our latest MFI Daily.)
Our Crane Brokerage Sweep Index, which hit the zero floor six months ago, remains at 0.01%. The latest Brokerage Sweep Intelligence, with data as of October 2, showed its first change in the last six months. RW Baird raised rates by a basis point across the board; their 100K tier now offers a rate of 0.02%. All other major brokerages offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last 24 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too).
