The ICI's latest weekly "Money Market Fund Assets" report shows MMFs falling sharply for the third week in a row, following four straight weeks of increases. The release says, "Total money market fund assets decreased by $31.36 billion to $4.55 trillion for the week ended Wednesday, June 23, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $31.52 billion and prime funds increased by $713 million. Tax-exempt money market funds decreased by $552 million." ICI's weekly "Assets" release shows money fund assets up $250 billion, or 5.8%, year-to-date in 2021. Inst MMFs are up $343 billion (12.4%), while Retail MMFs are down $94 billion (-6.1%).
ICI's stats show Institutional MMFs decreasing $29.1 billion and Retail MMFs decreasing $2.3 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.966 trillion (87.2% of all money funds), while Total Prime MMFs were $487.6 billion (10.7%). Tax Exempt MMFs totaled $92.7 billion (2.0%). Over the past 52 weeks, money fund assets have decreased by $136 billion, or -2.9%, with Retail MMFs falling by $128 billion (-8.2%) and Inst MMFs falling by $8 billion (-0.2%). (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 $2.25 billion to $1.43 trillion. Among retail funds, government money market fund assets decreased by $696 million to $1.12 trillion, prime money market fund assets decreased by $1.34 billion to $229.60 billion, and tax-exempt fund assets decreased by $211 million to $81.16 billion." Retail assets account for just under a third of total assets, or 31.5%, and Government Retail assets make up 78.3% of all Retail MMFs.
ICI adds, "Assets of institutional money market funds decreased by $29.10 billion to $3.11 trillion. Among institutional funds, government money market fund assets decreased by $30.82 billion to $2.84 trillion, prime money market fund assets increased by $2.06 billion to $258.01 billion, and tax-exempt fund assets decreased by $341 million to $11.57 billion." Institutional assets accounted for 68.5% of all MMF assets, with Government Institutional assets making up 91.3% of all Institutional MMF totals.
In other news, the Financial Times writes on "Money market funds: the tale of two diverging paths." The article explains, "There is a love-hate relationship between the US Federal Reserve, regulators and money market funds, a $5tn industry at the heart of short-term funding, shadow banking, monetary policy, and the dollar-centric international financial system."
It tells us, "Lately, prime funds are back on the regulatory hot seat and potentially face additional reforms for their role in the money market turmoil of March 2020. Big investor outflows from such funds at the time left managers rushing to sell assets, reprising some of the dynamics seen in the financial crisis. Meanwhile, the largest money market funds, mostly government funds, now lend the Fed several hundred billion dollars daily ($790bn on Tuesday) to finance the central bank's bond buying programme."
The FT piece says, "Since the turn of the year, short-term funding markets face a list of forces that push rates towards the negative territory, including $1tn cash released by the US Treasury to pay for various Covid economic relief programmes. Demand for a current low supply of treasury bills also pushes prices up and yields down. By setting the interest rate on the money funds' lending to the Fed at 0.05 percent, the central sets a floor for rates. If the Fed is paying those yields, funds are unlikely to want to lend to private borrowers at lower rates. So government funds happily lend the cash to the Fed, directly recycling the cash created by asset buying by the central bank."
It adds, "However, one additional dollar cash recycled by the money market fund to the Fed means one dollar less available to the banks. With government funds offering 0.05 percent, banks have to cut fees or increase returns on their deposits to compete for funds. And if money market funds compete away stable deposits that have more favourable regulatory treatments for the banks than other sources of funding, the appetite of banks for lending might be reduced. All this represents a big shift. The unsecured short-term funding market historically backed by prime funds will not disappear, but instead will likely be intermediated between more opaque money lenders and borrowers. Government funds are likely to continue to grow. Only the Fed and the US Treasury can satiate their asset growth demand going forward."
Finally, we covered our recent "Asian Money Fund Symposium" webinar in yesterday's News, but today we quote from Fitch Ratings' Alastair Sewell, who presented on Chinese Money Funds. He tells the virtual event, "Beyond [the] mutual fund part of China, there are an enormous amount of assets under management in various other products.... Money market funds in China ... have enjoyed enormous growth over the last 10 or so years and have really powered the broader industry. If you look at the long-term growth rate for money market funds in China on an annualized basis ... the growth has been spectacular, it's growing at an enormous pace. But then if you shorten the time period [to] the five-year and the three-year growth rate, and this is coming up to March 2021 ... the latest figures for China, you can see that the growth rate is decelerating."
Sewell asks, "Is there a future for money funds in China? ... Money market fund share has been shrinking, it went down from 61 percent [of all fund assets] at the end of 2013, to just below 50 percent at the end of last year. So relative share is shrinking, the question is: does that continue? Does this deceleration that we've seen in Chinese growth ... turn into shrinkage? And if so, where is the end point for this? Is China going to end up looking more like the U.S., and if China is going to get to that, how is it going to get there? Are money market fund assets going to shrink? Or is the pie going to increase? Aidan expressed a view earlier that the pie is going to increase, and I think we would concur with that view."
He explains, "One of the reasons for that is when you look at the relative share of different fund types, or funds in general in China, money market funds in particular, you see the penetration rate of mutual funds overall is below the penetration rate of money market funds, which is also pretty low.... You can see when you calculate money fund assets as a share of GDP, so to put it into relative terms, the money market fund assets in China are substantially behind the U.S. So even if China follows the U.S. over time and gets to some kind of fund asset allocation that looks like the U.S., then it would suggest that it's going to come from the overall pie expanding."
Sewell adds, "Of course, the next question is, when is it going to get there? And interestingly, China has developed incredibly quickly when you think [about how] money market funds appeared in the U.S. in the 1970s.... There's 40-plus years of development of money market funds over China in the U.S. [In] China, they've been going since 2003, and it's really only been going in a material way since 2013.... So, I think the story here is that there is still significant growth ahead, [but] slowing from where it was." (See the Asian MFS recording here and Crane Data subscribers may access the handouts here.)
