Daily Links Archives: December, 2014

The website (www.moneyfundsymposium.com) is live and we're now accepting registrations for our flagship conference, Crane's Money Fund Symposium. (Note: Today is also the last day for discounted hotel room rates at next month's Money Fund University.) The 7th Annual Crane's Money Fund Symposium is set for June 24-26, 2015 at the Minneapolis Hilton in Minneapolis, Minn. Crane Data, with partner Kinsley Meetings, hosted the largest gathering of money fund professionals anywhere (we had a record attendance of 495) this past summer in Boston, and we again expect a capacity crowd in Minnesota. Registration is now live and our preliminary agenda is now available. Crane's Money Fund Symposium offers money market portfolio managers, investors, issuers, and service providers a concentrated and affordable educational experience, as well as an excellent and informal networking venue. Registration for Crane's Money Fund Symposium 2015 will remain $750 (like it's been the past 6 years); exhibit space is $3,000; and sponsorship opportunities are $4.5K, $6K, $7.5K, and $10K. For those that can't wait for June, please consider joining us in January for Crane's Money Fund University (Jan. 22-23, 2015), our "basic training" event which will be held at The Stamford Marriott in Stamford, Conn.. Money Fund University offers attendees an affordable ($500) and comprehensive one and a half day, "basic training" course on money market mutual funds. Finally, watch for the preliminary agenda on our European Money Fund Symposium, which will take place Sept. 17-18, 2015, in Dublin, Ireland in coming weeks.

Bloomberg BNA published "What ERISA Plans Should Know About Money Market Reform". The piece, written by law firm Drinker, Biddle & Reath, says, "Most U.S. money market funds will begin restructuring their operations beginning in 2014 and throughout 2015 and 2016 as a result of the SEC's adoption of wide ranging changes to the rules regulating these funds. Since many plan participants invest in money market funds, ERISA plan sponsors, recordkeepers and investment consultants and other advisers will need to plan for operational, contractual, disclosure and other changes in connection with these new rules." It continues, "It is widely expected that the SEC's new money market rules will result in many changes in fund offerings. For example: Money market funds that currently have both institutional and natural persons as holders may spin off the institutional holders into separate floating NAV funds; Some institutional funds may decide to liquidate or merge with other funds; Some advisers may begin offering new money fund-"like" products that only hold short term securities (60 days or less maturity) and therefore value fund holdings at amortized cost; and Some prime money market funds may change their investment strategies to operate as a government money market fund in order to steer clear of the floating NAV and liquidity fee and gate rules (discussed below)." Regarding the effect on ERISA plans, "The SEC provided examples of how funds could satisfy the natural person definition with intermediaries, including through: contractual arrangements, periodic certifications and representations or other verification methods. Accordingly, ERISA service providers who hold fund shares in omnibus accounts may expect to be contacted by retail money market funds to provide these certifications or representations and/or to enter into new agreements with funds for this purpose. ERISA plan sponsors and investment consultants and advisers will also need to be alert to potential changes to existing money market funds currently offered in plans to which they provide services and/ or new fund offerings that may be appealing to and/or better serve the best interests of participants." On fees and gates it adds, "The liquidity fee and gate requirements will usually only be triggered in times of extreme market stress. But they are features that many ERISA participants and ERISA service providers will not find appealing. For that reason, there may be more demand from participants for government money market funds, which may, but are not required to, comply with the fee and gate rules. It is not expected that government money market funds will opt to become subject to these fee and gate rules. The liquidity fee and redemption gate rules will require recordkeepers to make technical changes in their operations. These operational changes could be expensive and time consuming to implement especially for smaller plans."

Final preparations are being made for next month's fifth annual Money Fund University, which will be held at The Stamford Marriott in Stamford, Conn., Jan. 22-23, 2015. (Please Note: Our discounted room rate at the Stamford Marriott of $159 plus tax is only available through Tuesday, Dec. 30.) Crane's Money Fund University offers attendees an affordable ($500) and comprehensive one and a half day, "basic training" course on money market mutual funds, educating attendees on the history of money funds, the Fed, interest rates, ratings, rankings, money market instruments such as commercial paper, CDs and repo, plus portfolio construction and credit analysis. At our Stamford event, we will also take a deep dive into the SEC's new money market reforms, with several sessions on the topic. New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing should benefit from our comprehensive program. Even experienced professionals may enjoy a refresher course and the opportunity to interact with peers in an informal setting. Attendee registration for Crane's Money Fund University is just $500, exhibit space is $2,000, and sponsorship opportunities (which are still available) are $3K, $4K, and $5K. We'd like to thank our MFU sponsors -- Fitch Ratings, Dreyfus/BNY Mellon CIS, J.P. Morgan Asset Management, Standard & Poor's Ratings Services, Wells Fargo Advantage Funds, Dechert and Invesco -- for their support, and we look forward to seeing you in Stamford next month. E-mail Pete Crane (pete@cranedata.com) for the latest brochure or visit www.moneyfunduniversity.com) to register or for more details. Crane Data is also preparing the preliminary agenda, and registration is now live, for our big show, Money Fund Symposium, which will be held June 24-26, 2015, at the Minneapolis Hilton in Minneapolis, Minn.

InvestorPlace published, "What to Expect From the Vanguard Ultra-Short-Term Bond Fund." Author Dan Wiener of the Independent Adviser for Vanguard Investors writes, "Vanguard intends to launch an actively managed Ultra-Short-Term Bond fund in February with a weighted maturity of zero to two years." (See Crane Data's Nov. 25 News, "Growing Interest in Chinese MMFs; Vanguard Launches Ultra Short BF," or see our November Bond Fund Intelligence publication for more.) The piece says, "What's most interesting about this new option is not that Vanguard is finally offering a low-risk way of dealing with rising interest rates, but that it has argued for some time that risks of investing in short-term or even intermediate-term bond funds are mitigated by the value of rising monthly distributions -- particularly when they are reinvested. The appeal of an ultra-short bond fund will probably be for those investors taking income distributions out of their holdings rather than reinvesting. Price moves will be small and yields should rise at a decent rate as interest rates rise. So, Vanguard's Ultra-Short-Term is not going to be a money market fund, but it also isn't going to be your typical short-term bond fund." It continues, "Ultra-Short-Term Bond's NAV can and will float. So, it's not a money market fund, as Vanguard took pains to point out. But risk should be low, and investors who can handle small changes in NAV may indeed find this fund a good alternative to a money market, one that likely will provide more yield and greater returns over time. Will Ultra-Short-Term Bond debut on schedule? That remains to be seen. In the past few years, Vanguard has cancelled or delayed several new fund launches." Also, ETF Trends writes "Short-term, Money Market Bond ETFs Reveal Rising Rate Expectations." It says, "Yields on ultra-short-term debt and bond-related exchange traded funds are rising, revealing increased expectations of a Federal Reserve rate hike. For example, the PIMCO Enhanced Short Maturity ETF has a 0.62% 30-day SEC yield and a 0.45 year duration. The Guggenheim Enhanced Short Duration Bond has a 0.34% 30-day SEC yield and a 0.47 year effective duration. The SPDR SSgA Ultra Short Term Bond ETF has a 1.59% 30-day SEC yield and a 0.27 year duration. The iShares Short Maturity Bond ETF has a 1.09% 30-day SEC yield and a 0.68 year duration."

The latest asset numbers show that money market mutual funds may be headed for another breakeven year -- year-to-date are down a mere $5 billion, or 0.2%, following the latest weekly jump. ICI's latest weekly "Money Market Fund Assets" says, "Total money market fund assets increased by $20.55 billion to $2.71 trillion for the five-day period ended Monday, December 22, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $6.76 billion and prime funds increased by $12.95 billion. Tax-exempt money market funds increased by $850 million.... Assets of retail money market funds increased by $2.46 billion to $907.94 billion. Among retail funds, Treasury money market fund assets increased by $490 million to $199.18 billion, prime money market fund assets increased by $900 million to $519.24 billion, and tax-exempt fund assets increased by $1.07 billion to $189.52 billion. Assets of institutional money market funds increased by $18.10 billion to $1.81 trillion. Among institutional funds, Treasury money market fund assets increased by $6.27 billion to $798.43 billion, prime money market fund assets increased by $12.05 billion to $935.87 billion, and tax-exempt fund assets decreased by $220 million to $71.25 billion." Year-to-date, Institutional money fund assets have increased by $16 billion, or 0.9%, while Retail assets have declined by $21 billion, or 2.3%. Also, according to ICI's "Long-Term Mutual Fund Flows" for the week of December 17, shows big outflows for bond funds in the latest week and outflows for the second week in a row. It says, "Bond funds had estimated outflows of $9.40 billion, compared to estimated outflows of $3.29 billion during the previous week. Taxable bond funds saw estimated outflows of $10.35 billion, and municipal bond funds had estimated inflows of $950 million."

In its 85th anniversary issue, Bloomberg's Businessweek did a feature entitled, "85 Years, 85 Ideas, which chronicles the 85 "most disruptive ideas" of the last 85 years. Coming in at number 37 on the list is "Shadow Banking" and the birth of money market funds. It says, "1970 The Reserve Fund, the first money-market mutual fund, is launched by financial consultants Bruce Bent and Henry Brown. Shadow banking isn't shadowy like the illicit, underground economy. It's shadowy like Me and My Shadow -- attached to regular banking at the heels and doing all of the same things at the same time. Want to borrow money? You can get a loan from a bank -- or you can do it the shadow way in the "repo" market by selling some Treasury bonds and promising to buy them back in a week for a slightly higher price, which represents the interest. Want to save money? You can deposit your cash in a bank -- or you can do it the shadow way by, say, investing in a money-market mutual fund or taking the other side of one of those repo transactions. Shadow banking took a while to make itself understood. Three years in, the Reserve Fund had only $1 million in assets. Then the New York Times wrote about it in 1973, and the funds began to pour in. Paul Samuelson, the Nobel laureate, was so impressed by the invention of Bent and Brown that he said they deserved a Nobel of their own. Variations on the theme quickly followed. In 1977 Merrill Lynch, Pierce, Fenner & Smith introduced a money-market mutual fund that you could tap by writing checks or using a credit card. Banks were outraged by the challenge to their core business. Then came repo, short for repurchase agreement. Securitization is also part of the shadow banking system.... Shadow banking [has] survived the damage to its reputation [since the 2008 crisis]. Its share of global financial assets slipped from 26 percent to 23 percent and has since rebounded to 25 percent, according to data compiled by the Financial Stability Board, an international body of regulators."

CFO Magazine published, "Bumpy 2015 for Money Market Funds?," which reviews Moody's "2015 Outlook" (see our Dec. 16 News "Moody's Issues Negative Outlook for Global Money Mkt Funds in 2015"). It reads, "Finance executives that steer their companies' short-term cash investing strategies take note: money market funds holding your surplus cash may be headed for a downgrade. Moody's Investors Service has revised its outlook for the money market fund (MMF) industry to negative from stable, saying the number of funds rated "Aaa" was likely to decrease in 2015. The action by Moody's promises to make next year even tougher for money market funds, which were already becoming less attractive to institutional investors and corporates because of new U.S. regulations and proposed rule changes in Europe." In other news, Reuters writes, "U.S. Fed Awards $66.42 bln Reverse Repos Friday." It says, "The U.S. Federal Reserve on Friday awarded $66.42 billion of fixed-rate reverse repurchase agreements to 27 bidders at an interest rate of 0.05 percent, the New York Federal Reserve said on its website. On Thursday, the U.S. central bank allotted $59.47 billion in overnight reverse repos to 22 bidders, including Wall Street dealers, money market mutual funds and mortgage finance agencies at an interest rate of 0.05 percent." Also, the New York Federal Reserve issued a "Statement to Revise the Time of Day of the Overnight Reverse Repurchase Agreement Operation for December 31, 2014." It says, "Regarding the overnight reverse repurchase agreement (ON RRP) operation to be conducted on Wednesday, December 31, 2014, the Desk will conduct the operation from 9:30 a.m. to 10:00 a.m. (Eastern Time), several hours earlier than usual. All other terms of the exercise will remain the same. This change only applies to the ON RRP operation conducted on December 31, 2014. The ON RRP operations conducted from Monday, December 22, to Tuesday, December 30, and those conducted on and after Friday, January 2, 2015, will be conducted at the usual time of 12:45 p.m. to 1:15 p.m. Any future changes to these operations will be announced with at least one business day's prior notice on the New York Fed's website."

The U.S. Treasury's Financial Stability Oversight Council issued a "Notice Seeking Comment on Asset Management Products and Activities," which says, "Consistent with its responsibility to identify risks to the financial stability of the United States, the Financial Stability Oversight Council (Council) is issuing this notice seeking public comment on aspects of the asset management industry (Notice), in particular whether asset management products and activities may pose potential risks to the U.S. financial system in the areas of liquidity and redemptions, leverage, operational functions, and resolution, or in other areas. The Council is inviting public comment as part of its ongoing evaluation of industry-wide products and activities associated with the asset management industry. The notice has been submitted to the Federal Register for publication. Once published, the public will have 60 days to submit comments. All comments provided to the Council will be available on www.regulations.gov. Interested persons may submit comments electronically through the `Federal eRulemaking Portal at www.regulations.gov <b:>`_." (See ICI's Paul Stevens' statement here.) Also, after 8 straight weeks of asset increases, money fund asset decreased last week. ICI released its latest weekly "Money Market Fund Assets" report, which says, "Total money market fund assets decreased by $13.41 billion to $2.69 trillion for the week ended Wednesday, December 17, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $4.05 billion and prime funds decreased by $21.01 billion. Tax-exempt money market funds increased by $3.55 billion. Assets of retail money market funds increased by $7.82 billion to $905.48 billion. Among retail funds, Treasury money market fund assets increased by $2.21 billion to $198.69 billion, prime money market fund assets increased by $3.16 billion to $518.35 billion, and tax-exempt fund assets increased by $2.45 billion to $188.45 billion. Assets of institutional money market funds decreased by $21.23 billion to $1.79 trillion. Among institutional funds, Treasury money market fund assets increased by $1.84 billion to $792.16 billion, prime money market fund assets decreased by $24.17 billion to $923.82 billion, and tax-exempt fund assets increased by $1.10 billion to $71.47 billion."

Columbia Management writes "Do you know what's in your short-term bond fund?" The article says, "Now that the Federal Reserve (the Fed) has ended its Quantitative Easing (QE) program, what is next for interest rates and fixed-income investments? Many investors expect the Fed to begin raising short rates sometime in 2015. Consequently, they are cautious in their asset allocations, maybe shying away from fixed-income investments. Regardless of the possibility of higher rates, we believe that investors should remain fully invested. At the same time, they should be wary about having too much credit and interest rate risk in their portfolio. In such an environment, short-term bond funds may be worth a closer look.... High-quality short-term bond funds can provide attractive returns for investors seeking a conservative investment option in today's uncertain interest rate environment.... Some managers take reasonable, well-diversified risks; others may be tempted to chase yield, with the results being risks that may exceed investor tolerance. In their ongoing search for yield, some investors may have missed how much interest rate risk or credit risk was driving the strong returns of their short-term bond funds. Looking under the hood of your bond fund can help shed light on the amount and kinds of risks the fund is taking. Is the fund earning its yield by investing in riskier below-investment grade bonds, through riskier sectors or longer maturity bonds? Remember, there is no free lunch. Higher yield generally means higher risk."

The Federal Reserve Bank of New York issued yet another "Statement to Revise Terms of Overnight Reverse Repurchase Agreement Operational Exercise," Friday, which says, "Beginning with the operation to be conducted on Monday, December 15, the offering rate of ON RRP operations will be decreased from ten basis points to five basis points. All other terms of the exercise will remain the same. As an operational readiness exercise, this work is a matter of prudent planning by the Federal Reserve. These operations do not represent a change in the stance of monetary policy and no inference should be drawn about the timing of any future change in the stance of monetary policy." In other news, the Washington Post writes, "Will the Fed Drop 'Considerable Time' When it Meets This Week?." The piece says, "Two words hang over this week's Federal Reserve meeting: "considerable time". That's how long the central bank has said it would wait before nudging up interest rates from the current rock-bottom zero. But with the economy accelerating, a large number of economists and market analysts are expecting the Fed to drop that formula from its guidance when its monetary policy committee meets Tuesday and Wednesday." (Watch for more Fed coverage tomorrow.)

Norm Champ, Director of the Division of Investment Management at the SEC, delivered a speech at ICI's Securities Law Development Conference on the "Top 10 Lessons Learned and Points to Remember from 2014." Here are some excerpts that related to money market funds: "9. The Division of Investment Management is Not a Regulatory Island, Nor Should it Be. The Volcker Rule is not the only recent example of regulatory coordination that required thoughtful joint action. As you know, the Commission successfully adopted amendments to the rules that govern money market mutual funds in July. The adopted money market reforms are intended to make our financial system more resilient and enhance the transparency and fairness of these products for America's investors. These reforms would not have been possible without the critical assistance we received from Treasury and the IRS in addressing the tax issues related to the floating NAV reform." He also cited, "7. Data Plays an Important Role in Developing Policy and Regulations. The SEC of 2014 is an agency that increasingly relies on technology and specialized expertise. We recognize that the innovative use of data and analytical tools contributes to our ability to make better and more informed policy recommendations and enhances our investor protection efforts. The recent Money Market reforms are an excellent example of the importance of data. As you know, the failure of the Reserve Primary money market fund and the associated heavy redemptions from other money markets funds during the 2008 financial crisis prompted us to revisit the way money market funds are regulated. In 2009, the Commission proposed the first set of money market reforms, and final rule amendments were adopted in 2010. Following the adoption of these initial reforms, Commission staff continued to monitor and study money market funds. In November 2012, the SEC's Division of Economic and Risk Analysis delivered an extensive economic study to the Commission addressing a series of Commissioner questions about money market mutual funds. Less than a year later, in June of 2013, the Commission proposed additional money market fund reforms based on this study, and the additional reforms were successfully adopted in July of this year. The data-based economic studies and analysis that DERA provided throughout the rulemaking process were essential in formulating these final reforms. The Commission has also benefitted greatly from the monthly data that Form N-MFP provides us about money market fund holdings, which was the result of the 2010 money market mutual fund reforms. For example, the enforcement action against Ambassador Capital Management last year stemmed from an ongoing analysis of money market fund data by IM staff that involved a review of the gross yield of funds as a marker of risk." And, finally, Champ includes: "3. Open Communication with the Industry and the Public is Imperative. Another important avenue of communication is the public comments that we receive from investors, industry participants, and other parties in response to proposed regulatory initiatives. These comments provide invaluable information and insight, which help inform our recommendations to the Commission. In connection with the recent money market reforms, the Division received more than 1,400 comments. Division staff carefully considered the views expressed and the data put forth by all the commenters before formulating their recommendation for the final money market rule amendments and, as a result, the SEC's rulemaking process was greatly enhanced." In other news, Reuters writes, "U.S. Fed awards $50 bln 21-day Term Reverse Repos" and the Global Post writes, "U.S. Money Funds' Stake in U.S. Treasuries Fall: JP Morgan".

JP Morgan and BlackRock recently liquidated some of their smallest money market funds, according to SEC Filings. J.P. Morgan liquidated its JPM Michigan Municipal Money Market and the JPM Ohio Municipal Money Market funds and BlackRock liquidated its BlackRock Cash Government Money Fund. The first Prospectus Supplement, entitled, "Notice of Liquidation of the JP Morgan Michigan Municipal Money Market Fund and JP Morgan Ohio Municipal Money Market Fund," says, "The Board of Trustees of the JPMorgan Michigan Municipal Money Market Fund and JPMorgan Ohio Municipal Money Market Fund (the "Funds") has approved the liquidation and dissolution of each of the Funds on or about December 12, 2014 (the "Liquidation Date"). On the Liquidation Date, each Fund shall distribute pro rata to its shareholders of record all of the assets of the Fund in complete cancellation and redemption of all of the outstanding shares of beneficial interest, except for cash, bank deposits or cash equivalents in an estimated amount necessary to (i) discharge any unpaid liabilities and obligations of the Fund on that Fund's books on the Liquidation Date, including, but not limited to, income dividends and capital gains distributions, if any, payable through the Liquidation Date, and (ii) pay such contingent liabilities as the officers of each Fund deem appropriate subject to ratification by the Board. Capital gain distributions, if any, may be paid on or prior to the Liquidation Date. Effective immediately, each Fund may depart from its stated investment objective and strategies as it increases its cash holdings in preparation for its liquidation." (The funds held almost all of its assets in "repo," often a sign of pending liquidation, as of the latest month-end according to our Money Fund Portfolio Holdings data.) Also, BlackRock liquated its BlackRock Cash Funds: Government. Its filing states, "On November 19, 2014, the Board of Trustees of BlackRock Funds III (the "Trust") approved a proposal to close BlackRock Cash Funds: Government (the "Fund") to new investors and thereafter to terminate the Fund. Accordingly, effective 5:00 P.M. (Eastern time) on November 20, 2014, the Fund will no longer accept purchase orders from new investors. On or about December 19, 2014 (the "Termination Date"), the Fund will be terminated as a series of the Trust." (BlackRock also recently liquidated Select and Trust share classes of its BlackRock Cash Inst, Prime and Treasury funds too.) See our latest article on MMF liquidations in the October issue of our Money Fund Intelligence, and see our Nov. 4 "`Link of the Day" "Virtus on Liquidating MMFs" and our Sept. 25 LOTD on Williams Capital Liquidating its MMF.

Money fund assets increased for the 8th week in a row and broke back above the $2.7 trillion level for the first time since February. The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, which says, "Total money market fund assets increased by $18.47 billion to $2.71 trillion for the week ended Wednesday, December 10.... Among taxable money market funds, Treasury funds (including agency and repo) increased by $8.49 billion and prime funds increased by $9.38 billion. Tax-exempt money market funds increased by $600 million. Assets of retail money market funds decreased by $2.65 billion to $897.67 billion. Among retail funds, Treasury money market fund assets decreased by $1.74 billion to $196.48 billion, prime money market fund assets decreased by $1.41 billion to $515.19 billion, and tax-exempt fund assets increased by $500 million to $186.00 billion. Assets of institutional money market funds increased by $21.12 billion to $1.81 trillion. Among institutional funds, Treasury money market fund assets increased by $10.24 billion to $790.32 billion, prime money market fund assets increased by $10.78 billion to $947.99 billion, and tax-exempt fund assets increased by $100 million to $70.37 billion." Since September 24, MMF assets have climbed $120 billion, and since July 23, when the SEC passed its Money Fund Reforms, assets have climbed $141 billion. Year-to-date, money fund assets have decreased by a mere $12 billion, or 0.5%, making 2014 the third year in a row that assets have been virtually flat.

ICI released a study entitled, "BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans," which shows trends in 401K plan investing. It says, "With $4.4 trillion in assets at the end of the second quarter of 2014, 401(k) plans have become one of the largest components of U.S. retirement assets, accounting for nearly one-fifth of all retirement assets. Equity funds accounted for the largest share of assets in 401(k) plans. In 2012, about 40 percent of assets were held in equity funds, more than 15 percent was held in balanced funds (with most of that being held in target date funds), and about 10 percent was held in bond funds. GICs and money funds accounted for 15 percent of assets.... Bond funds (mostly domestic) held 10.3 percent of assets and money funds held 3.1 percent. More than half of 401(k) plans offered money funds and more than six in 10 offered guaranteed investment contracts (GICs)." To be exact, 54% of plans offered money funds, says the study. Also, the average plan offered 1 money fund. "A little more than half of 401(k) plans offer one money fund on average, and more than six in 10 401(k) plans offer one GIC on average.... Participants in 401(k) plans with less than $1 million in plan assets had 36.6 percent of their assets invested in balanced funds and 5.4 percent in money funds, on average, compared with 12.6 percent and 3.1 percent, respectively, for participants in plans with more than $1 billion in plan assets.... Money market mutual funds had the lowest expense ratio of any of the asset classes, with an asset-weighted average expense ratio of 0.18 percent of assets in 2012 for money market mutual funds in 401(k) plans. Money market mutual funds experienced the largest decline in expenses, falling from 0.31 percent of assets in 2009 to 0.18 percent in 2012.... Some of the decline in money market mutual fund asset-weighted average expenses may be attributable to fee waivers, which increased substantially in money market funds due to the low interest rate environment following the market turmoil of 2008.... Money market mutual fund expenses fell by 12 basis points, from 0.29 percent in 2009 to 0.17 percent in 2012."

Pensions & Investments published a piece Monday, "Firms Prepare for Money Market Changes." It states, "Managers such as BlackRock, Vanguard Group Inc., J.P. Morgan Asset Management, Goldman Sachs Asset Management and RBC Global Asset Management Inc. are retooling their cash management businesses in advance of changing regulations on net asset value for institutional prime money market funds. Some firms are adding investment and/or distribution staffers; others are augmenting their short-duration fixed-income strategies; and still others are doing a combination of both." The article explains, "BlackRock, New York, is already seeing demand, said Thomas Callahan, managing director and co-head of global cash management. In response, company officials are adding standard short-duration mutual funds, short-duration exchange-traded funds and separate accounts. "The demand for short-duration products is directly related to money market reform," Mr. Callahan said. He said the money management giant might launch a municipal short-duration ETF "in the near future." Noting he is seeing a migration out of money market funds into separately managed accounts, Mr. Callahan added: "As we get closer to implementation in October 2016 we think that trend will continue.... Cash was something clients didn't have to think about; it was pretty much auto-pilot," said Mr. Callahan. "Now the auto-pilot's been switched off." In late November, Vanguard, Malvern, Pa., filed a registration statement with the SEC to launch an actively managed ultra-short-term bond fund as an alternative to prime money market funds." The P&I piece adds, "John Donohue, managing director and head of global liquidity in JPMAM's global fixed-income and liquidity group in New York, said his team is talking to clients about their liquidity needs. "We launched a few floating NAV products a few years ago in anticipation of these regulatory changes," said Mr. Donohue. "They haven't had a lot of traction, but as that (October 2016) date approaches, we may see some movement into that space." It goes on, "JPMAM also launched a short-duration high-yield fund last year. In addition to separately managed accounts, Mr. Donohue added he expects to see money flowing into government money market funds, since they're exempt from the new SEC regulation. GSAM is another manager that's preparing for the impending regulation change. "Our clients have been interested in stability, liquidity and yield. Money market funds used to bring you all three, but money market reform is changing that a bit," said David Fishman, managing director and co-head of GSAM's global liquidity management business, New York. "You can't get all three at once in today's market, so you need to decide what's more important and what will yield you two out of those three." James McCarthy, managing director and co-head of that business, said, "We continue to explore other strategies. Bespoke separately managed portfolios are something we can already offer today. In addition, we're considering other types of mutual funds and even ETFs." Mr. McCarthy said GSAM launched in February "a limited maturity obligation fund. It's longer than a money market fund but less volatile than a traditional short-duration fund." Officials at RBC Global Asset Management, Minneapolis, launched a short-duration fixed-income mutual fund and an ultra-short fixed-income mutual fund at the beginning of 2014. "We think separately managed accounts will capture a good portion of the money we think will be in motion," said Brandon T. Swensen, vice president and co-head of U.S. fixed income."

Goldman Sachs Asset Management published a paper this week on "Liquidity Investment Challenges." It says, "For many years prior to the financial crisis that began in 2008, money market funds offered investors three main benefits: high credit quality, liquidity and yield. However, in the years since the crisis, liquidity investing has been at the nexus of massive changes in regulation. On one side, stricter banking regulation has significantly reduced the ability and willingness of financial institutions' to participate in money markets. On the other side, money market funds are subject to new regulations in the US and pending regulatory changes in Europe that are transforming the market. Regulatory changes and other factors have contributed to significant imbalance in the supply/demand dynamics of liquidity investing. This imbalance has played an important role in pushing yields on many traditional money market investments into negative territory. As a result, investors in today's markets will find it increasingly challenging to achieve all three traditional benefits of the money markets. Maintaining liquidity and credit quality now comes at a cost, in the form of negative yields." It continues, "Banking regulations are becoming both stricter and more encompassing, with new regulations being applied across all financial institutions in all areas.... Basel III introduced two key measures designed to ensure that financial institutions have adequate amounts of liquidity. In addition, certain US banks must adhere to a Supplementary Leverage Ratio (SLR), which raises the cost of low margin business and low risk assets. After many years, we finally have clarity regarding the new requirements for money market funds and a specific implementation timeline in the US, while money market reform remains on the legislative agenda in Europe. In some respect, this event is momentous in that it follows a long period of anticipation and debate. In other respects, it is just another step in the evolution of liquidity markets that have been changing over the past several years.... With the increased regulation of the short-term markets, we believe that liquidity investors looking for stability, liquidity, and yield will have to choose the relative priority of those goals and assess their liquidity needs in light of an expanding set of investment solutions. One important goal of stricter banking regulation is to ensure that a financial institution can overcome any short-term liquidity disruption. However, in money markets, this has had the effect of sharply reducing the available supply. Since financial institutions are required to hold a certain level of highly-liquid assets, they are less able to lend out short-term debt, thus decreasing the supply of Commercial Paper, Time Deposits and Repurchase agreements -- securities that form the bedrock of money market fund investing. While the supply of short dated assets has declined, the same cannot be said about the demand for these assets."

The Association for Financial Professionals published an article, "Money market Reform, Why Treasury’s Mindset Must Change." It says, "The issuers of products that money market funds (MMFs) typically purchase will feel the impact of the new MMF regulations by the Securities and Exchange Commission (SEC) nearly as much as the funds themselves. In a recent AFP roundtable in Seattle, the treasurer of a home loan bank expressed concern that fewer funds will mean the purchase of fewer discount notes. Of greater concern to treasurers is issuing commercial paper, which is a staple of debt and a big investment for MMFs. Bankers at the roundtable said the new MMF rules would not immediately impact commercial paper, but admitted they would have a negative impact over the long term. "Big issuers may have to pay more," one practitioner predicted. In the future, companies may purchase commercial paper directly from issuers instead. "We're already seeing companies do their own counterparty risk analysis on financial institutions," said Craig Martin, executive director of the Corporate Treasurers Council. Martin has already seen companies bring investment in-house and invest in high-grade, short-term corporate bonds. From a cost/benefit standpoint, that makes sense. "On a relative basis, you're paying hedge fund fees for MMFs," said one roundtable participant. "If I were running a treasurer's office, I'd look at investing directly in the commercial paper of issuers like Chinese banks," one banker suggested. With money market funds less appealing, treasurers will need to change their mindset, roundtable participants said. "We have become a nation of idle cash sitting in the bank," said one practitioner. The problem, practitioners and bankers agreed, is the existing mindset that the board will not tolerate any losses. While corporate treasury groups are earning nothing on their investments, organizations like endowments are earning much more with relatively little risk. "The mindset of treasury professionals needs to change beyond just supporting security and liquidity," he said. "If you're not buying back shares or paying dividends, treasury should become more of an investment arm."" The piece concludes with a list of action items for treasurers. In other news, Businessweek did a piece on "Shadow Banking: Post-Crisis, Risks Remain." It reads, "Shadow banking isn't shadowy like the illicit, underground economy. It's shadowy like Me and My Shadow -- attached to regular banking at the heels and doing all of the same things at the same time. Want to borrow money? You can get a loan from a bank -- or you can do it the shadow way in the "repo" market by selling some Treasury bonds and promising to buy them back in a week for a slightly higher price, which represents the interest. Want to save money? You can deposit your cash in a bank -- or you can do it the shadow way by, say, investing in a money-market mutual fund or taking the other side of one of those repo transactions."

Money fund assets increased for the 7th week in a row and have risen by $78.6 billion since Oct. 15. ICI released its latest weekly "Money Market Fund Assets" report, which says, "Total money market fund assets increased by $25.58 billion to $2.69 trillion for the eight-day period ended Wednesday, December 3, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $5.82 billion and prime funds increased by $16.42 billion. Tax-exempt money market funds increased by $3.34 billion. Assets of retail money market funds increased by $3.20 billion to $900.32 billion. Among retail funds, Treasury money market fund assets decreased by $280 million to $198.22 billion, prime money market fund assets increased by $2.01 billion to $516.59 billion, and tax-exempt fund assets increased by $1.47 billion to $185.50 billion. Assets of institutional money market funds increased by $22.38 billion to $1.79 trillion. Among institutional funds, Treasury money market fund assets increased by $6.09 billion to $780.09 billion, prime money market fund assets increased by $14.41 billion to $937.21 billion, and tax-exempt fund assets increased by $1.87 billion to $70.27 billion." year-to-date, money fund assets have decreased by $31 billion, or 1.1%. In other news, KraneShares issued a press release announcing a new Commercial Paper ETF. It says, "KraneShares, a New York based ETF company, and E Fund Management, one of China's largest asset managers, launched the KraneShares E Fund China Commercial Paper ETF (NYSE: KCNY) today. KCNY seeks to deliver yields from investment-grade commercial paper issued in Mainland China by companies headquartered in China. We believe the Fund can be an alternative to U.S. investors' money market fund and/or bank deposit program investments. It is the first commercial paper ETF in the United States."

Reuters writes "Scramble for Cash in U.S. Intensifies as Year-End Looms"." The article reads, "Cash hoarding by banks, securities dealers and asset managers in the United States is in full swing with signs that the year-end ritual might be more intense than years past. In the final weeks of every year, the demand for cash typically heightens as financial companies rush to assemble the money needed to bridge the period into the new year. This year, however, tighter bank regulations and heavy redemptions by investors from mutual and hedge funds have ratcheted up the urgency, analysts said.... Last week, money market mutual funds recorded a sixth straight week of inflows, bringing their assets to nearly $2.7 trillion, the highest since March, according to iMoneynet. In anticipation of this surge in demand for cash-like products, the Treasury Department raised its one-month bill offering on Tuesday and the Federal Reserve will introduce term reverse repurchase agreements (RPP) next Monday. Investors will choose among bank accounts and other ultra short-term products that earn some income even though most offer negligible interest because of the Fed's near zero rate policy. They will also consider investments they can easily move money in and out of in case of unexpected market volatility as most recently seen in mid-October. "It's more than just interest rates money fund managers are looking at right now. They are looking to be more proactive than recent years to manage their money at year-end. They are looking at investments with higher yields and/or longer maturities," said Alex Roever, head of U.S. interest rate strategy at J.P. Morgan Securities in New York." Also, Euronews writes, "China money market funds grow as foreign firms' 'trapped cash' freed up." The article says, "Rapid reforms by Beijing allowing foreign companies to move funds from their China operations across borders relatively freely is boosting treasurers' confidence in using the yuan as the preferred currency for doing business. That increased confidence has also helped China's fledgling money market funds industry as companies look to invest their cash in investment vehicles after years of parking funds in bank deposits which offered them next to nothing in terms of yield. For years, treasurers operating in China had to face the issue of "trapped cash": the inability to freely remit their funds to their regional treasury centres outside the mainland as the yuan was not freely convertible."

Federated's Debbie Cunningham writes in her latest "Month in Cash" commentary, "The Fed is in a Giving Mood." She explains, "It's the holiday season, and it appears the Federal Reserve has given money funds a present, amazing as that sounds. Readers of my column know I don't mince words when it comes to my frustration with regulators. This year they have given plenty of reasons to feel that way, from the SEC's new rules for money funds, the months it took to fill some of the Fed's open seats and its continual tinkering with the Reverse Repo Program (RRP). The latter has been very helpful at times, giving us some yield by setting a floor on overnight lending. But from an operational perspective, it is hard to plan ahead when the program's parameters keep shifting. The latest change, when the Fed put a cap on the RRP of $300 billion and didn't guarantee the yield if bids went above that, was particularly problematic. We knew that would put extra pressure on the typical month-end, window-dressing transaction period. Sure enough, the facility broke down at September quarter end when the bids exceeded the cap and the offered rate was zero. But in the minutes of October's Federal Open Market Committee (FOMC) meeting, released mid-November, the New York Fed said it was poised to offer a term RRP that should alleviate the month-end pressure. There hasn't been much elaboration about it, other than that it will go into effect this month, probably by at least the first week, and that it is an additional $300 billion. That's good because the capacity needs are at quarter end—and in this case it also is year end. So that is a big positive, and we don't get many positives from the Fed." In other news, the U.K.-based Investment Week writes, "Aviva compensates investors as money market fund makes loss. The article says, "Aviva has issued redress to customers after a money market fund [sic] which it said would protect capital fell into the red, according to the reports. The firm's Aviva Deposit fund has lost 2.3% over the past five years, belying a statement in old marketing literature which suggested initial investments would be protected, according to the Telegraph. While the company pointed to record low interest rates as being to blame, the paper also highlighted the impact of the product's 1% charge." Finally, Montreal's Fiera Capital issued a press release, "Fiera Capital announces closure of Money Market Mutual Fund." It reads, "Fiera Capital Corporation, investment fund manager of the Fiera Capital Money Market Fund, announced the closure of the Fund, effective on or about January 30, 2015."

The Wall Street Journal wrote Monday, "Bond Funds Load Up on Cash." (Note: Crane Data recently began tracking bond funds via its new publication, Bond Fund Intelligence.) The article explains, "Large bond funds are holding the most cash since the financial crisis as portfolio managers brace for potential price swings and unruly trading ahead of an expected Federal Reserve rate increase in 2015. The top 10 U.S. bond funds by assets held an average 6.6% of their portfolios in cash at their latest reporting date, said fund tracker Morningstar Inc. That is double the sum they set aside last year and the most since 2007. The growing cash cushion highlights concern among some investors in the $24.6 trillion bond market about declines in liquidity, or the capacity to buy or sell securities quickly at or near a given price." The article continues, "Adding cash can hurt fund performance but is just one strategy bond managers are using to shore up their funds' defenses in preparation for a turn in investor sentiment. Others are stepping up their use of derivatives -- financial contracts that draw their value from the performance of an underlying asset, index or interest rate—experimenting with new ways of trading on electronic platforms, or becoming choosier about the investors they take on.... The Securities and Exchange Commission recently requested information from large mutual-fund managers about their contingency planning for a drop in liquidity, said a person familiar with the matter. In other news, the NY Fed released a "Statement Regarding Term Reverse Repurchase Agreements," which says, "As noted in the October 29, 2014, Statement Regarding Reverse Repurchase Agreements, the Federal Open Market Committee (FOMC) instructed the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) to examine how term RRP operations might work as a supplementary tool to help control the federal funds rate, particularly when there are significant and transitory shifts in money market activity. In support of this goal, and to reduce potential volatility in money market rates, the FOMC instructed the Desk to conduct up to $300 billion in term RRP operations that cross year-end. This statement provides further detail on these operations. These operations are planned to be held each Monday from December 8 through December 29 [and will offer $50 billion or $100 billion]. Each of these operations will be conducted from 9:30 a.m. to 10:00 a.m. (ET).... The maximum bid rate will be set at 0.10 percent (ten basis points), and undersubscribed auctions will be awarded at the highest rate submitted by any bidder."

The Federal Reserve Bank of New York issued another "Statement to Revise Terms of Overnight Reverse Repurchase Agreement Operational Exercise" Friday, which raises the rate on its reverse repo program temporarily to 10 basis points. They say, "As noted in the October 29, 2014, Statement Regarding Reverse Repurchase Agreements, the Open Market Trading Desk at the Federal Reserve Bank of New York has been conducting daily overnight reverse repo (ON RRP) operations as part of an operational readiness exercise and has recently been adjusting the offering rate of these operations on a periodic basis. Beginning with the operation to be conducted on Monday, December 1, the offering rate of ON RRP operations will be increased from seven basis points to ten basis points. As noted in the October 29 statement, the Desk plans to maintain the offering rate at ten basis points through the operation to be conducted on Friday, December 12. All other terms of the exercise will remain the same. As an operational readiness exercise, this work is a matter of prudent planning by the Federal Reserve. These operations do not represent a change in the stance of monetary policy and no inference should be drawn about the timing of any future change in the stance of monetary policy." The NY Fed's latest statistics on its Temporary Open Market Operations show the RRP program jumped on Friday, quarter-end, to $173.9 billion from $148.3 billion the prior day. This is below the $186.3 billion reached last month-end (Oct. 31) and far below the maximum $300 billion limit reached at quarter-end (Sept. 30) <b:>`_. In other news, the FT continues camping out on the negative Euro rates story with "Euro-denominated cash funds gain from negative bank rates." It says, "The increasing number of banks charging customers to deposit money has prompted investors to pour billions of euros into short-term funds in an effort to escape negative yields. Some of the biggest euro-denominated money market funds -- part of the E1tn money market industry in which companies and banks can deposit and borrow short-term cash -- saw assets increase 19.2 per cent in the three months to September to E85.6bn, according to Moody's."