The Investment Company Institute released its latest weekly "Money Market Fund Assets" report Thursday, which shows MMFs surging again in the latest week, the 7th increase in the past 8 weeks. Money fund assets are up $200 billion, or 4.7%, year-to-date in 2021. Inst MMFs are up $233 billion (8.4%), while Retail MMFs are down $33 billion (-2.2%). Over the past 52 weeks, money fund assets have increased by $100 billion, or 2.7%, with Retail MMFs falling by $32 billion (-2.2%) and Inst MMFs rising by $132 billion (5.6%). We review the latest asset totals, and we also excerpt more highlights from our recent Bond Fund Symposium (Online), below.
ICI's "Assets" release says, "Total money market fund assets increased by $49.17 billion to $4.50 trillion for the week ended Wednesday, March 31.... Among taxable money market funds, government funds increased by $52.95 billion and prime funds decreased by $3.07 billion. Tax-exempt money market funds decreased by $720 million." ICI's stats show Institutional MMFs increasing $55.0 billion and Retail MMFs decreasing $5.9 billion. Total Government MMF assets, including Treasury funds, were $3.887 trillion (86.4% of all money funds), while Total Prime MMFs were $511.1 billion (11.4%). Tax Exempt MMFs totaled $99.3 billion (2.2%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)
It explains, "Assets of retail money market funds decreased by $5.86 billion to $1.49 trillion. Among retail funds, government money market fund assets decreased by $3.40 billion to $1.15 trillion, prime money market fund assets decreased by $1.91 billion to $251.96 billion, and tax-exempt fund assets decreased by $548 million to $88.26 billion." Retail assets account for just over a third of total assets, or 33.2%, and Government Retail assets make up 77.2% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds increased by $55.02 billion to $3.00 trillion. Among institutional funds, government money market fund assets increased by $56.35 billion to $2.73 trillion, prime money market fund assets decreased by $1.16 billion to $259.16 billion, and tax-exempt fund assets decreased by $171 million to $11.05 billion." Institutional assets accounted for 66.8% of all MMF assets, with Government Institutional assets making up 91.0% of all Institutional MMF totals.
In other news, we wrote last week about our recent Bond Fund Symposium virtual conference. (See our April 1 News, "Bond Fund Symposium Highlights: Davis, Driscoll, Rothweiler Comment and see our Bond Fund Symposium 2021 Download Center.) Today, we quote from the session, "Regulatory Update: Latest Bond Fund Issues," which featured Jamie Gershkow from Stradley Ronon Stevens & Young and Aaron Withrow from Dechert LLP. Gershkow gave a "Money Market Fund Update" and recapped recent discussions surrounding potential future regulations.
She explains, "Money market funds have been in the news a fair amount recently. This past December, the President's Working Group issued a report on how money market funds fared during the liquidity stresses in the market in March 2020. The report essentially concluded that more work is needed to be done to reduce some of the risks posed by prime and tax exempt money market funds that may lead to or exacerbate stresses in the short-term funding markets. The report sets forth 10 different policy measures that could be considered for prime and tax exempt money market funds, which I'll discuss on the next slide. The report does not endorse any one specific policy measure in particular, and recognizes also that some of these may be used in combination and [as part of] a larger reform package.... The reports really intended to start the discussion of what rulemaking may be appropriate for money market funds, given the events that happened last March. The report leaves government money market funds out of the discussion of potential policy measures."
Gershkow tells us, "The SEC then subsequently requested comment on this report -- comments are due in a few weeks on April 12th. The SEC Request for Comment is a little bit broader than the report itself, and asks for comment on these 10 specific policy measures. [It] also asks for comment generally on other types of reform options that may be useful for money funds [and on] just improving the overall short-term funding markets and the effectiveness of the previously enacted reforms that had been implemented for 2a-7 after the last global financial crisis."
She continues, "The Financial Stability Board also has indicated that they expect to deliver policy proposals in July to enhance the resilience of money market funds. And just this morning, ESMA [the European Securities and Markets Athority] issued a consultation paper in the context of reviewing their regulations on money market funds and have asked for feedback. So lots is going on from kind of all over the place on money market funds."
Gershkow comments, "So this slide lists the 10 different policy measures that are in the President's Working Group Report. Taking a step back, also, this report identifies three overarching goals of money market funds reform to be considered as these are being evaluated. The first one is improving vulnerabilities in money market funds that may contribute stresses in the market. The second is improving the overall resilience and functioning of the short-term funding market. And a third is reducing the likelihood that [government] or taxpayer support may be needed in the future to support money market funds."
She states, "So, I don't know that we have time to go through in detail all of these, but some things I will highlight here. The first option here [is the] removal of the tie between liquidity and fee and gate thresholds. So currently, under rule 2a-7, the board is permitted to impose a liquidity fee or a redemption fee for certain types of money market funds, once weekly liquid assets drop below 30%. And what was observed this past March was that, that bright lines has kind of created this dynamic that exacerbated redemptions in a time of stress as investors saw liquidity dropping close to 30%, because this is publicly posted on websites every day. Investors got kind of scared that their money may be tied up in a redemption gate if it dropped below 30% and they increased redemption behavior to avoid the prospect of that happening.... [T]his policy proposal recognizes some of those events from this past March and suggests removing that that fees engage be tied to 30% liquidity and would, instead, generally be based on the best interest finding by the board."
Gershkow continues, "The next reform here, reforms of conditions for imposing redemption gates, sets forth various options that could be reforms with respect to how redemption gates are currently implemented.... Also, ... imposing a higher with weekly liquid asset requirement. Then we also have counter-cyclical weekly liquid asset requirements. So this would be upon certain events on the 30% weekly liquid asset thresholds could actually move maybe down to 20, 25% and other requirements related to that such as fees engage and move in tandem. A lot of these policy proposals are more conceptual in nature without full details built out yet. So, I think the comment letters on this will be really insightful to see what potential issues, you know, are out there."
She adds, "Another policy proposal would be floating NAVs for all prime and tax exempt money market funds. Right now, retail funds are permitted to use the amortized cost method of valuation. Swing pricing requirements are another option here. This is something we've seen in the mutual fund side, and here at suggested that it could perhaps apply to money market funds. I think there [are] operational issues with same day settlement matters related to money market funds, that may make this not quite so feasible."
Finally, Gershkow tells the BFS, "Then the other requirements are more ... bank-like regulatory requirements -- minimum balance at risk, capital buffers, a private liquidity facility. These are some repeats from after the last global financial crisis; things that were proposed or discussed, but not ultimately adopted. They've made their way back into this report, and [may be] considered in future rulemaking.... So a lot more [remains] to be seen. If we're following the playbook from last global financial crisis, you know, comments [are] due to the SEC on this, then last time there was a roundtable, and then policy proposals to amend 2a-7. So, an interesting area for us I'll fall on for sure."
