The February issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Monday morning, features the articles: "Fee Waivers Poised to Shrink, MMF Revenue Ready to Jump," which discusses recent earnings calls and expectations for Fed hikes to remove waivers; "Money Fund University '22 Highlights: Supply, New Regs," which quotes from our latest basic training conference; and, "Swing Pricing Main Focus in SEC's Money Fund Reforms," which covers articles explaining the SEC's controversial fee proposal. We also sent out our MFI XLS spreadsheet Monday morning, and we've updated our database with 1/31/22 data. (Note: Our MFI, MFI XLS and Crane Index products are all available to subscribers via our Content center.) Our February Money Fund Portfolio Holdings are scheduled to ship on Wednesday, Feb. 9, and our February Bond Fund Intelligence is scheduled to go out on Monday, Feb. 14.
MFI's "Fee Waiver article says, "Money market mutual funds are poised to sharply reduce fee waivers and see revenue jump in coming months, according to recent earnings calls. BlackRock, Federated Hermes, Northern and BNY Mellon have all weighed in on the topic on their latest earnings calls, and Crane Data's estimates show revenues are poised to double or triple in 2022."
It continues, "BlackRock says on its Q4'21 earnings call that the advisor expects fee waivers to cease as we get into 2022. CFO Gary Shedlin comments, 'We incurred approximately $135 million of gross discretionary yield support waivers in the fourth quarter, essentially the same as the third quarter, bringing total waivers to approximately $500 million for the full year. Given the current prospects for higher rates in the near term, we now anticipate most of these waivers would cease shortly after the first 25 basis point increase in the Fed funds rate.... Recall that approximately 50% of these gross fee waivers are generally shared with distributors, reducing the impact on operating income.'"
Our "MFU Highlights" article reads, "Crane Data recently hosted its Money Fund University 'basic training' event, which featured a number of experts giving overviews of the money markets, money funds and interest rates. We excerpt from some market comments below. (Note: Subscribers and Attendees may access the Powerpoints and recordings via our 'Money Fund University 2022 Download Center.'")
J.P. Morgan Securities' Teresa Ho, presenting an "Instruments of the Money Markets Intro," says, "The money markets refer to a part of the fixed income markets whose securities mature inside of 13 months or less. It is high quality and low credit risk, and clearly because of both of those things, doesn't yield a lot relative to the longer end of the credit curve.... This is a very, very large market.... Borrowers use it as a way to help finance their expenses on a short-term basis. Investors use it as a way to invest cash on a temporary basis, and then others use it as a way to manage their interest rate risk.... As long as there's demand for liquidity and as long as there's a mismatch between incoming and outgoing cash flows, there is a need for the money markets."
Ho continues, "While it was a fairly mundane part of the market back in the day. I think what we have found out, given all of the recent financial crisis that we've come across, is just how integral this part of the market is to the rest of the fixed income markets."
Our "Swing Pricing" states, "Barclays Joseph Abate writes on 'Swinging NAVs' in his latest 'Interest Rate Research.' He tells us, 'Last month, the SEC released a series of money fund reform proposals. The most significant was a swing price requirement for institutional prime funds. We review the proposal, its complications, and consider its effects on funding markets.... Money fund reform returned to regulators' policy agendas in the aftermath of the surge in prime fund redemptions in March 2020 that caused the CP market to freeze up.... This is despite two intervening rounds of reforms meant to prevent investor runs by shifting institutional prime funds to floating NAVs and imposing minimum overnight and weekly liquidity buffer requirements."
The piece continues, "These reform proposals all share similar features, which reflects the fact that many of these ideas are modifications of past reforms or re-treads of earlier, rejected approaches. There does not seem to be a strong consensus among the SEC commissioners about all of these reforms -- two of the five commissioners noted their opposition to swing pricing last month. But one of these opponents is resigning at the end of this month. Thus, although we think there is a strong chance that the next round of money fund reforms will include measures to reduce investors' propensity to run, it is not clear if this will take the form of swing pricing. The SEC laid out an expected timeline for its proposals. Once the rule becomes effective (perhaps by next summer), some of the rule changes will take immediate effect. Others, such as the minimum liquidity buffers and swing pricing, will be adopted after a transition period of 6m and 12m, respectively."
MFI also includes the News brief, "MMF Assets Plunge in January," which says, "After rising for 5 months in a row (capped off with a surge of $126.0 billion in Dec.), money fund assets plunged by $146.8 billion in January to $5.024 trillion, according to MFI XLS. ICI's separate series shows assets falling in 4 of the past 5 weeks to $4.628T."
Another News brief, "Barron's Discusses SEC's New Regs," asks, "Could the SEC's New Regs Kill Prime Money Market Funds?" They write, "To the untrained eye, the debate over the Securities and Exchange Commission's proposed new money market fund regulations may seem like a fight over nothing. But it is causing a dustup between regulators and fund providers all the same. And it could have big ramifications for investors."
Our February MFI XLS, with Jan. 31 data, shows total assets decreased $146.8 billion to $5.024 trillion, after increasing $104.6 billion in December, $49.7 billion in November and $20.5 billion October. Assets increased $878 million in September and increased $27.9 billion in August. Assets decreased $12.4 billion in July and $73.0 billion in June. Our broad Crane Money Fund Average 7-Day Yield was flat at 0.02%, and our Crane 100 Money Fund Index (the 100 largest taxable funds) also remained flat at 0.02%.
On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA and the Crane 100 both unchanged from previous month at 0.09% and 0.10%, respectively. Charged Expenses averaged 0.08% for the Crane MFA and the Crane 100. (We'll revise expenses Tuesday once we upload the SEC's Form N-MFP data for 1/31/22.) The average WAM (weighted average maturity) for the Crane MFA was 31 days (down 4 days from previous month) while the Crane 100 WAM dropped 5 days to 33 days). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)
