In January 2016, money market mutual funds were in the midst of a series of dramatic changes ahead of October 2016's Money Fund Reforms, the biggest changes to money fund regulations since their introduction in October 1970. Five years ago, we ran the story, "Rolling w/Reform Changes II: Recap of '15 Announcements, '16 Plans," which reviewed a number of major changes among the largest managers that took place during 2015. As in the past year, exits from Prime MMFs and fund repositioning were notable trends. Today, we examine the Covid-19 driven changes and general fund actions over the past year, as we prepare for potential regulatory changes and more fund lineup shifts in the New Year. (See also our Dec. 17 News, "Top 10 Stories of 2020: Assets Skyrocket; Yields Plunge; Regs Coming?" Note: Readers may also review "Crane Data's News," "Link of the Day" and "Money Fund Intelligence Archives" for more stories from the past year, 5 years and decade-plus.)
On May 20, we wrote "Northern Liquidating Prime Obligs," which says, "Northern Institutional Funds filed to liquidate its $1.7 billion Northern Prime Obligations Portfolio earlier this week, we learned from Bloomberg. The filing says, 'The Board of Trustees of Northern Institutional Funds has determined, after consideration of a number of factors, that it is in the best interests of the Prime Obligations Portfolio and its shareholders that the Portfolio be liquidated and terminated on or about July 10, 2020 pursuant to a plan of liquidation approved by the Board." On December 15, we also wrote, "Northern Drops Other Prime Shoe, Exits Muni Too; MFI Intl Holdings.
In our June 22 News, we reported, "Fidelity to Liquidate Prime Instit Money Funds; Cites Investor Behavior." It states, "Fidelity Investments, the largest manager of money market funds, sent an e-mail to clients ... with the Subject, 'Fidelity Institutional Prime Money Market Funds Liquidation.' They write, 'We have decided to liquidate our two institutional prime money market funds: Fidelity Investments Money Market (FIMM) Prime Money Market Portfolio and Fidelity Investments Money Market (FIMM) Prime Reserves Portfolio.'" (See too our Feb. 2, 2015 News, "Fidelity Announces Major Changes to MMFs; Staying Stable, Going Govt.")
On August 28, we wrote "Vanguard Prime Money Market Fund Going Government," which tells us, "Vanguard Group, the second largest manager of money market mutual funds with $482.3 billion, announced that it is converting its $125.3 billion Vanguard Prime Money Market Fund into a Government MMF, the third major exit from the Prime space since the coronavirus shutdown froze the commercial paper market in March and the first Prime Retail fund to convert since Money Market Fund Reforms went into effect in 2016." See their release, "Vanguard Announces Changes to Money Market Fund Lineup." Vanguard also filed changes for their remaining two Prime MMFs at the end of August. These funds, Vanguard Market Liquidity Fund and Vanguard Variable Insurance Money Market Fund, would remain Prime MMFs but would increase their holdings in Government securities.
In November, BMO announced the liquidation of their BMO Institutional Prime Money Market Fund. The Fund closed to new investors on November 13 and liquidated on December 23. We also saw a series of Municipal MMF liquidations. (See our stories: "Northern Drops Other Prime Shoe, Exits Muni Too; MFI Intl Holdings" (12/15/20), "Morgan Stanley NY Muni MM Gone" (10/5/20) and "Federated to Liquidate State Muni MFs (9/4/20).)
In addition to Prime and Muni exits and shifts, we saw continued jockeying in the ESG and Social space. Federated Hermes also filed to enter the 'Social' or 'Impact' money fund space in 2020. In late August, the firm converted its Federated Hermes Government Obligations Tax-Managed Fund into a social money market fund. The fund, which had $7.5 billion in assets shifted to seek "direct trades to women-, minority- and veteran-owned broker-dealers starting on Oct. 1."
In late September, we reported on BlackRock and Mischler Financial's partnership, creating a share class for Mischler clients. Goldman Sachs and Drexel Hamilton announced the launch of the Drexel Hamilton share classes of the Goldman Sachs Financial Square Government Market Fund (VETXX) and GS Financial Square Prime Obligations Money Market Fund (VTNXX).
Invesco filed to launch new "CAVU Securities Classes" for its Invesco Liquid Assets Portfolio, Invesco Treasury Portfolio and Invesco Government & Agency Portfolio. HSBC also entered the ESG space, filing to launch HSBC ESG Prime Money Market Fund. Also, DWS filed to liquidate its $212 million DWS Government Cash Reserves Fund Institutional (BIRXX).
Despite the rocky year, Dreyfus, the ninth largest manager of money market funds, opted to stick with Prime funds. In mid-November, we covered the firm's money market fund consolidations, a series of changes to the Dreyfus Cash Investment Strategies product lineup. Their press released announced "a streamlined product offering of 19 funds across three fund families … a uniform pricing structure within each fund family ... as well as reduced management fees in four retail funds and one institutional fund ... and broader investor eligibility."
Consolidation of financial firms continued in 2020 too. In February, we covered the announcement that Morgan Stanley would buy E*Trade. Around the same time, we also covered a Franklin Templeton announcement regarding their acquisition of Legg Mason. According to the statement, the acquisition "establish[ed] Franklin Templeton as one of the world's largest independent, specialized global investment managers with a combined $1.5 trillion in assets."
Finally, the impact of the Covid-19 pandemic on money funds and the likely future reforms that will come from it were studied and reported on throughout the year. The Centre for Economic Policy Research published a paper on the runs in the Prime market during the Covid-19 pandemic in mid-July. The SEC covered the frozen CP market, MMFs and short-term funding in its paper "U.S. Credit Markets: Interconnectedness and the Effects of the COVID-19 Economic Shock."
Also in October, we covered the ICI paper paper, "The Impact of COVID-19 on Economies and Financial Markets." In November, the FSB and IOSCO wrote about the March and April mayhem, while the ICI also published the white paper, "Prime Money Market Funds Didn't Trigger Financial Turmoil in March." Finally, in late December, the President's Working Group discussed potential reform options for money market funds. Happy New Year, and good luck to all in 2021!
