ICI's latest weekly "Money Market Fund Assets" report shows money fund assets skyrocketing in the latest week to a record $4.9 trillion. Assets jumped $73.4 billion to $4.89 trillion as Institutional assets finally joining their Retail brethren with big asset gains. Over the past 52 weeks, money fund assets have risen $288 billion, or 6.2%, with Retail MMFs rising by $330 billion (22.3%) and Inst MMFs falling by $42 billion (-1.4%). ICI shows assets up by $159 billion, or 3.4%, year-to-date in 2023, with Institutional MMFs up $23 billion, or 0.8% and Retail MMFs up $135 billion, or 8.1%. (Note: We hope you'll join us later this month at Crane's Bond Fund Symposium, which takes place March 23-24, 2023, in Boston, Mass. Click here for details.)
The weekly release says, "Total money market fund assets increased by $73.38 billion to $4.89 trillion for the week ended Wednesday, March 1, the Investment Company Institute reported. Among taxable money market funds, government funds increased by $55.67 billion and prime funds increased by $12.36 billion. Tax-exempt money market funds increased by $5.35 billion." ICI's stats show Institutional MMFs jumping $51.0 billion and Retail MMFs rising $22.4 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.997 trillion (81.7% of all money funds), while Total Prime MMFs were $781.5 billion (16.0%). Tax Exempt MMFs totaled $115.1 billion (2.4%).
ICI explains, "Assets of retail money market funds increased by $22.36 billion to $1.81 trillion. Among retail funds, government money market fund assets increased by $7.57 billion to $1.20 trillion, prime money market fund assets increased by $10.46 billion to $514.97 billion, and tax-exempt fund assets increased by $4.32 billion to $102.63 billion." Retail assets account for over a third of total assets, or 37.0%, and Government Retail assets make up 65.9% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $51.03 billion to $3.08 trillion. Among institutional funds, government money market fund assets increased by $48.10 billion to $2.80 trillion, prime money market fund assets increased by $1.90 billion to $266.53 billion, and tax-exempt fund assets increased by $1.03 billion to $12.44 billion." Institutional assets accounted for 63.0% of all MMF assets, with Government Institutional assets making up 90.9% of all Institutional MMF totals.
According to Crane Data's separate Money Fund Intelligence Daily series, money fund assets increased by $67.4 billion for the month of February (through 2/28/23), and they rose another $23.4 billion on the first day of March to a record $5.276 trillion. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're over $400 billion lower than Crane's asset series.)
In other news, we quoted earlier this week from Federated Hermes' latest "10-K Annual Report" filing with the SEC. (See our March 1 News, "Federated Hermes' Annual 10-K Report on Distribution and Regulations.") Today, we quote from the remainder of the filing.
On European regulations, they comment, "The regulation of money market funds in the EU and UK is another example of potential divergence between the EU and UK post-Brexit. EU and UK money market fund regulation is considered 'equivalent' until December 31, 2025. Accordingly, UK-domiciled money market funds currently remain on par with current EU regulatory requirements. As a result, EU-based funds can still use passports to sell to UK investors. However, following various consultations, reports, and speeches by representatives of IOSCO and the FSB in 2020, 2021 and 2022, similar to the SEC in the U.S., ESMA, the BoE, the European Systemic Risk Board (ESRB), the European Banking Authority (EBA), and the International Monetary Fund (IMF), among other regulators, have been re-examining existing money market fund regulation, soliciting public comment on proposed money market fund reforms, and issuing reports and recommendations."
Federated continues, "While money market fund reform continues to be discussed in the UK and the EU, new proposals for reform have not been promulgated. It has been reported that, in late January 2023, Andrew Bailey, a governor of the BoE and Chairman of the FSB, expressed concerns regarding money market funds given their perceived impact during the recent financial crisis and the 'mini budget' crisis in the UK in September 2022, and indicated that the BoE and FCA will come out with their own money market fund reform proposals in 2023. It also has been reported that the EU has indicated that it will not be able to work on money market reform proposals until the next European Commission mandate in 2025."
They conclude, "Given the above, it is possible that the EU or UK could deviate from, or simply not adopt, any new or amended UK or EU money market fund laws, rules or regulations that could be adopted in the future. Management believes that a final SEC rule on money market fund reforms could influence the UK and EU regulators. As discussed above, Federated Hermes believes that money market funds are investment products that have proven their resiliency. Federated Hermes intends to continue to engage with UK and EU (as well as U.S.) regulators in 2023 and beyond, both individually and through industry groups, to shape any further money market fund reforms to avoid overly burdensome requirements or the erosion of benefits that money market funds provide."
The 10-K says, "Since the beginning of the fourth quarter 2022, UK and EU regulators and supervisory authorities issued, proposed, or adopted other new consultations, directives, rules, laws, and guidance that impact or could impact UK and EU investment management industry participants, including Federated Hermes. For example: On January 27, 2023, the ESMA published its 'Guidelines on stress test scenarios under the MMF Regulation,' (i.e., Money Market Fund Regulation (MMF Regulation)), which followed the ESMA's publication on November 30, 2022, of its Final Report on 'Guidelines on stress test scenarios under the MMF Regulation.' In these new Guidelines, the ESMA provides updated specifications on the types of money market fund stress tests and their calibration. Upon the new Guideline becoming effective on March 27, 2023, managers of money market funds will need to use them to conduct stress tests and complete required reporting under Article 37 of the MMF Regulation. Federated Hermes is reviewing these new Guidelines and their impact on its money market fund business."
It also comments, "Management continues to monitor and assess any lingering potential impact of the Pandemic generally, particularly on the workforce, and the impact of the increasing interest rate environment on asset values and money market fund and other fund asset flows, and related asset mixes, as well as the degree to which these factors impact Federated Hermes' institutional prime and municipal (or tax-exempt) money market business and Federated Hermes' Financial Condition. Management also continues to monitor, and expend internal and external resources in connection with, the potential for additional regulatory scrutiny of money market funds, including prime and municipal (or tax-exempt) money market funds."
In a section on "Risk Factors," the report discusses the, "Risk of Federated Hermes' Money Market Products' Ability to Maintain a Stable Net Asset Value." They state, "Approximately 40% of Federated Hermes' total revenue for 2022 was attributable to money market assets. An investment in money market funds is neither insured nor guaranteed by the FDIC or any other government agency. Federated Hermes' retail and government/public debt money market funds, and its private and collective money market funds, seek to maintain a stable or constant NAV.... It is also possible to lose money by investing in these funds. Federated Hermes devotes substantial resources, such as significant credit analysis, consideration of ESG factors and attention to security valuation, in connection with the management of its products and strategies. However, the NAV of an institutional prime or municipal (or tax-exempt) money market fund, or variable NAV fund or, if the above described conditions are met, a low-volatility NAV money market fund, can fluctuate, and there is no guarantee that a government/public debt or retail (i.e., stable or constant NAV) money market fund, or a low-volatility money market fund, will be able to preserve a stable or constant NAV in the future.... If the NAV of a Federated Hermes stable or constant NAV money market fund were to decline to less than $1.00 per share, such Federated Hermes money market fund would likely experience significant redemptions, resulting in reductions in AUM, loss of shareholder confidence and reputational harm, all of which could cause material adverse effects on Federated Hermes' Financial Condition."
It adds, "Many of Federated Hermes' products and strategies are designed for use by institutions such as banks, insurance companies and other corporations. A large portion of Federated Hermes' managed assets, particularly money market, fixed-income, and alternative/private markets assets, are held by institutional investors. If the structure of institutional investment products, such as money market funds, changes or becomes disfavored by institutions, whether due to regulatory or market changes, competing products (such as FDIC-insured deposit products or non-transparent, actively managed ETFs) or otherwise, Federated Hermes could be unable to retain or grow its share of this market and this could adversely affect Federated Hermes' future profitability and have a material adverse effect on Federated Hermes' Financial Condition."
Finally, the 10-K states, "Increases in interest rates could have an adverse effect on Federated Hermes' revenue from money market, fixed-income, alternative/private markets and other products and strategies. In a rising short-term interest rate environment, certain investors using money market products and strategies or other short-duration fixed-income products and strategies for cash management purposes can shift these investments to direct investments in comparable instruments in order to realize higher yields. In addition, rising interest rates will tend to reduce the fair value of securities held in various investment products and strategies. Rising interest rates can also impact the value of intangible or other assets held on Federated Hermes' financial records and contribute to financial impairment."
