The SEC recently released its latest quarterly "Private Funds Statistics" report, which summarizes Form PF reporting and includes some data on "Liquidity Funds," or pools which are similar to but not money market funds. The publication shows overall Liquidity fund assets were higher in the latest reported quarter (Q2'21) to $319 billion (up from $304 billion in Q1'21 and up from $303 billion in Q2'20). 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 Third Calendar Quarter 2019 through Second Calendar Quarter 2021 as reported by Form PF filers." (Note: Crane Data believes the largest portion of these liquidity fund assets are securities lending reinvestment pools. Note too that we'd been adding the SEC's Liquidity Fund and Section 3 Liquidity Fund totals in past quarters, but we recently learned that the latter is a subset of the former and not a separate group.)
The tables in the SEC's "Private Funds Statistics: Second Calendar Quarter 2021," with the most recent data available, show 76 Liquidity Funds (most of which are "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), up 3 from last quarter and up 9 from a year ago. (There are 56 Section 3 Liquidity Funds out of the 76 Liquidity Funds.) The SEC receives Form PF reports from 37 Liquidity Fund advisers (24 of which are Section 3 Liquidity Fund advisers), the same number as last quarter and as a year ago.
The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $319 billion, up $15 billion from Q1'21 and up $16 billion from a year ago (Q2'20). Of this total, $317 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 $330 billion, up $16 billion from Q1'21 and up $21 billion from a year ago (Q2'20). Of this total, $328 billion in is Section 3 (large manager) Liquidity Funds.
A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $105 billion is held by Other (33.1%), $57 billion is held by Unknown Non-U.S. Investors (18.0%), $52 billion is held by Private Funds (16.5%), $25 billion is held by SEC-Registered Investment Companies (7.8%), $8 billion in held by Pension Plans (2.4%), $11 billion is held by Insurance Companies (3.5%), $3 billion is held by Non-Profits (1.0%) and $1 billion is held by State/Muni Govt. Pension Plans (0.3%).
The tables also show that 70.3% of Section 3 Liquidity Funds have a liquidation period of one day, $296 billion of these funds may suspend redemptions, and $263 billion of these funds may have gates. WAMs average a short 37 days (45 days when weighted by assets), WALs are 53 days (60 days when asset-weighted), and 7-Day Gross Yields average 0.20% (0.10% asset-weighted). Daily Liquid Assets average about 48% (40% asset-weighted) while Weekly Liquid Assets average about 60% (60% asset-weighted).
Overall, these portfolios appear shorter with a heavier Treasury exposure than money market funds in general; almost half of them (44.6%) are fully compliant with Rule 2a-7. When calculating NAVs, 75.0% are "Stable" and 25.0% are "Floating." For more, see our Jan. 27 News, "SEC Proposes Amendments to Form PF Large Liquidity Fund Reporting," and see the SEC's recent proposal "Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews."
In other news, we wrote in our Feb. 7 Link of the Day about SEC Chair Gensler's FSOC Statement. While we linked to more of the Feb. 4 FSOC Meeting, we didn't cover everything. (See the recording here and see the FSOC's Statement on Money Market Fund Reform here.)
Their Financial Stability Oversight Council Statement on Nonbank Financial Intermediation explains, "Nonbank financial institutions (NBFIs) are an essential source of capital in financial markets and provide vital funding to the U.S. economy. In 2016, the Financial Stability Oversight Council (Council) issued a statement describing risks to financial stability that may arise from certain asset management products and activities. The market dislocations of March 2020 demonstrated that some NBFIs remain vulnerable to acute financial stresses and may amplify or transmit stress in the financial system."
It continues, "In 2021, the Council made it a priority to evaluate and address the risks to U.S. financial stability posed by three types of NBFIs: hedge funds, open-end funds, and money market funds (MMFs). At its meeting on February 4, 2022, the Council received updates from member agency staff on progress over the past year regarding these three types of NBFIs through working groups and Council member agency rulemaking activity. The Council will continue to evaluate, monitor, and address these risks to financial stability in 2022."
On "Money Market Funds," FSOC writes, "MMFs are significant participants in short-term funding markets, which are a substantial source of funding for businesses and local governments and liquidity for investors. As described in the Overview of Recent Events and Potential Reform Options for Money Market Funds released by the Presidents Working Group on Financial Markets in December 2020, significant outflows from MMFs during the early stages of the COVID-19 pandemic destabilized short-term funding markets. As in 2008, taxpayer-backed government intervention was necessary to support MMFs and short-term funding markets more broadly and to restore market functioning. These events underscored that MMFs have structural vulnerabilities that can create or transmit stress to short-term funding markets."
They adds, "The SEC recently proposed reforms that would increase the minimum liquidity requirements for MMFs, require some MMFs to adopt swing pricing, and remove MMFs' ability to impose liquidity fees and redemption gates when funds fall below certain liquidity thresholds. These measures should help reduce the financial stability risks posed by MMFs. The Council supports the SEC's efforts to reform MMFs and strengthen short-term funding markets." See the FSOC Meeting Webcast here.
