Last week, Crane Data hosted its big Money Fund Symposium conference in Atlanta, where over 530 money market professionals discussed rates, pending reforms, asset inflows and a number of other hot topics in cash. The opening session, "Keynote: The Elevation of Money Funds II," featured `Invesco's Laurie Brignac and Tony Wong. Asked about the recent AFP Liquidity Survey, Brignac replies, "It's our fourth year sponsoring the survey.... I think it's a tremendously important survey because it's just a great opportunity for companies to benchmark themselves against their peers…. We know cash and know how important it is, and we know [that] you should never take it for granted. But a lot of people do. It's just that asset class people never want to think about." (Note: Conference materials are available in our "Money Fund Symposium 2023 Download Center." Watch for more highlights and excerpts in coming days and in the next Money Fund Intelligence.)
She explains, "The AFP survey is terrific because it basically reminds people to take a look and ask, 'How are we benchmarking versus our peers?' It was interesting because this year they were doing the survey in March, right in the middle of the banking crisis. So this was the first time that I've seen in years where cash in bank deposits is down below 50%. It's like 47%, down 8% from last year." (For more, see our June 20 News, "AFP 2023 Liquidity Survey: Deposits Plunge from 55 to 47%, MMFs Jump.")
Brignac asks, "Where did that money go? We're all talking about the flows into money funds, which is great, but it's not all going into the money market funds. Half of it went into money funds. The other half went into direct securities, because these are large corporates, they buy securities, Treasuries and agencies. So, that was an interesting takeaway."
She says, "The other thing, too, that I thought was interesting is the companies are planning to hold even more cash, which I think is going to bode well for the industry. Those companies that actually have seen a decrease in cash, the main reason was really around inflationary pressures. It's probably the highest risk out there. So, when we look at money fund balance and the tremendous growth that we saw in March of 2020, we thought it was going to leave a lot faster. But it really didn't. Companies are just holding onto cash and that trend is going to continue for the foreseeable future."
When asked to comment further on fund flows, Brignac responds, "Talking about the liquidity business, obviously we've seen a tremendous amount of growth over the last few years. I mean, we saw that first [Covid] runup. But we've been very fortunate to continue to receive flows. Even, pre-SVB, when the industry was down, we were actually up. So, a part of this, too, is, I think, a testament to the team, performance, distribution, and I know we'll talk about some of the D&I and our partnership with Cavu, which has been tremendously successful. We are primarily an institutional shop, about 70% of our AUM is in in U.S. money funds. But we did see, quite a bit of growth on the retail side. One of our retail prime funds has pretty much doubled in size."
She adds, "So, you're right, there was a difference in [retail vs. inst] flows. When you started to see the Fed raise rates as quickly as they did, obviously, we know the storyline around bank deposits. But also, the volatility in the market spiked, and you also saw retail investors turn more risk-off. That's when you saw the retail flows. So, yeah, it has been a story of two sets of flows for different reasons."
Asked about fears over bank deposits and money funds, Wong tells us, "I think the fear factor was very high. From folks that were in money market liquidity products, we certainly had a number of calls. I personally went and had conversations with policymakers, regulators in this period.... We need a healthy and strong banking sector to impact credit creation and economic [growth].... I think it's manageable, but if we continue to see tightening by the Fed.... We all have years of experience and when you see tightening ... things usually break.... Something tells me maybe that's [SBV and Credit Suisse] not the final chapter of the movie. It's something we're watching very carefully."
Brignac states, "This is not our crisis.... But somehow it always seems to loop back. So, it's like, 'What is the second, third derivative of this thing? Where it's going to come back on? Thankfully, the names that we buy [are solid], and I know as an industry, we're very transparent. It is a different environment. So, we had to go through a lot of those questions with clients. Then, of course, we had the debt ceiling.... It's not our first rodeo.... [We focus on] reminding clients, this is how it works. This is how we kind of manage through this thing."
Asked about D&I share classes of money funds, Brignac says, "If you look at the AFP survey too, one of the things that it highlighted is that a lot of the corporate treasurers are saying, 'We need to write ESG into our investment guidelines. We need to start looking at these types of money market funds, because as we all know, in money funds two-thirds of the assets are institutional, and the majority of the assets, 75+%, are government. So how do I integrate that into my cash management?' I think that the D&I share classes are just a terrific way to do it."
She explains, "With Cavu, what resonated with us is that they are a veteran, minority owned firm, and we liked: number one, their impact and how they set up their programs. They will take the revenues, that the corporations treasurers can help generating, and they put it towards specific charities, like Boys Club of America, Girls that Code, Dog Tag Inc., which helps veterans, and they can actually give corporate treasurers, you know, a statement this is how your money actually helped the community. Right. It's not only what do you do with your time, your talent, your treasure, so it really does resonate with us.... And you've seen the growth ... I think [we're up] to $16.5 billion since we launched this in 2020. So, I think it's obviously picking up steam as it is I think with the other D&I share classes. I think it's a great way our community can give back."
Finally, on pending money fund reforms, Brignac comments, "Honestly, at this point, we're just going to roll with it and see what they're going to bring. We were expecting something last year, but obviously there's been a lot of moving parts since last fall. The SEC and really all of the regulators are quite busy. So, I don't think it's going away. I understand that it's probably going to come out this fall.... Hopefully, we won't have to deal with that nuclear button [concerning intermediaries accounting for] negative interest rates.... There's going to probably be increased transparency.... The way we work, the way we communicate, that's going to continue to change. So, we're going to have to stay on top of it and stay relevant and roll with the punches."
