BNY Mellon's Dreyfus unit recently published an article entitled, "Meet the Manager with Frank Gutierrez," which interviewed the portfolio manager on his background and discussed a number of topics in the money markets. Gutierrez says, "There is an evolution to being a portfolio manager that begins with a solid understanding of the markets and the sectors that you are covering. Being on a trading desk is a good segue into understanding the intricacies of whatever market you are working with. In my case, I was interested and had experience with executing short-term money market securities. I also had an advocate. In my initial roles at JP Morgan Chase supporting the trading desks, I was mentored by a senior portfolio manager that identified me as someone who was passionate about markets and the liquidity space and saw leadership skills in me that would benefit the team. She ultimately hired me when a trader/junior PM role became available and that gave me the first opportunity to join the desk and ultimately become a portfolio manager." (Note: Great to see so many old friends, and thanks for visiting us at the AFP Conference in Philadelphia! See you next year in San Diego.... We hope to see you at our upcoming Money Fund University in Boston, Dec. 15-16.)
When asked, "Where does your passion for government portfolios and Fed policy stem from?" He responds, "Investing and managing portfolios within the short-term fixed income space naturally drives you to be interested in Fed policy because Fed policy has a direct effect on our portfolios and our markets. In my opinion, the money market space has evolved, with government money market funds now encompassing the greatest share of assets. Fed policy, regulatory requirements, market technicals are some of the intricate things that affect money market investors and that we should understand as portfolio managers."
The Dreyfus PM continues, "In the past, money markets were seen as 'just cash'. But the public has come to realize that money markets are more complex. At the same time the corporate cash sector has grown dramatically since the financial crisis and continues to evolve. Corporate treasury teams now play a larger role in internal decision making and they need partners that can guide them in these markets. Portfolio management in money markets was once seen as the first step to a career in fixed income but now that perspective has completely shifted. Cash investing requires someone that is very in tune with policy and macroeconomics. With the market getting more complex, investment managers are also required to adjust."
Dreyfus also queries, "When did you start to see the shift in perspectives around the importance of short-term investments and money market funds?" Gutierrez responds, "I believe it changed after the great financial crisis (GFC), which brought to bear a lot of risks in the markets. Repo, liquidity and funding risks had a direct effect on our markets. At the same time in 2008, the historic flight to quality led to record growth in money market fund assets under management (AUM)."
He tells us, "I was part of the money market team at JP Morgan Chase at the time. While we had sizable assets, the money markets were seen as mature and low risk. You started to see a shift in the appreciation that the money markets played a very critical role in the ecosystem. I believe that regulators, clients and treasurers started to be more in tune with the front end of the yield curve and short-term investments as well."
Gutierrez also comments, "Around 10 or 15 years ago Bloomberg ran a story about a group of Dominican professionals working on Wall Street (DOWS) who had formed a nonprofit organization. I was intrigued about their vision and values and reached out to them. The organization looks to play an important role in various significant ways. One was to connect Dominican professionals within finance or Wall Street, which at the time weren't that many. Secondly, the organization looks to work with Hispanic students both in high school and college, giving them mentoring opportunities to connect with Hispanic professionals."
He adds, "Additionally, the organization was brought together by the need to connect Dominican professionals in the US with professionals in the Dominican Republic as their capital markets evolved. As an example of the kind of impact it has, the American Chamber of Commerce in the Dominican Republic hosts a 'Dominican Week' annually where they bring corporations and professionals into the US to share and learn about best practices. For over 20 years now, the Chamber has asked DOWS to assist and coordinate a finance panel to exchange ideas and learn about the capital markets. As of today, I am the Vice President and a board member. The group has evolved but the mission remains the same, and I am very proud of the work it does to connect my passion for people and markets."
In other news, JP Morgan wrote last week that, "Internal MMFs lead institutional prime growth." They say, "Despite looming MMF reforms, prime MMF AUMs have actually grown this year. YTD, AUMs have increased by $175bn, or 22%.... Much of the growth has come from retail prime funds, which have seen AUMs increase by $125bn YTD. This is not surprising, as MMFs have been one of the best-performing asset classes YTD -- retail prime MMFs are currently yielding around 3.00% with minimal duration risks, which also means they are a relatively safe place to hide out from market volatility."
They explain, "Notably, institutional prime AUMs have also grown YTD by about $54bn. This is somewhat surprising given the prospect of MMF reform, which would have large implications for institutional prime MMFs and their utility as cash management vehicles for many corporations. However, a closer look at institutional prime AUMs reveals that over half of institutional prime AUMs belong to internal prime MMFs, which, as the name suggests, serve as internal cash management vehicles for other types of funds (e.g., equity, bond, etc.) managed by the same fund family and are not publicly available for direct investment."
JPM writes, "We estimate internal institutional prime MMFs1 currently hold about $360bn of AUMs, while public institutional prime MMFs (the prime funds that are publicly available to institutional investors for direct investment) hold about $300bn. And when we look at the overall prime MMF market, internal institutional prime funds represent 37% of the market, versus 33% for retail prime funds and 30% for public institutional prime funds."
They explain, "The AUM growth on the institutional prime MMF side has been entirely driven by these internal funds; public institutional prime MMF AUMs haven't really budged YTD. This means that positive flows into institutional prime MMFs have been the effect of fund managers holding more cash, as negative returns have plagued both the equity and fixed income markets. Much like retail investors, these fund managers see superior yields with minimal volatility and duration risks, making prime MMFs an ideal place to temporarily park their cash until they see a better entry point back into the markets. And due to the nature of internal MMFs and their investor base, the prospect of reform isn't as much a deterrent as it is for most institutional investors, such as corporations that desire same-day liquidity."
Finally, JPM tells us, "Considering the above factors, to the extent Fed action remains hawkish and uncertain, we expect to continue to see prime MMF inflows in the near term. Nevertheless, forthcoming news on MMF reform specifics and/or changes in expected Fed policy could extinguish the trend, but we expect the attraction of prime yields to retail and internal investors will continue into the foreseeable future."
