Daily Links Archives: March, 2015

The Wall Street Journal published an article Friday, "The Investing Lesson of 1937: Hold Some Cash." It says, "The manager of the world's biggest hedge-fund firm is comparing today's economy to the last years of the Great Depression. Ray Dalio, who runs the $170 billion Bridgewater Associates in Westport, Conn., and whose views are widely followed, recently told clients that he saw echoes of 1937 in current economic conditions. Then, as now, a recovery after a deep downturn sparked a stock-market boom. Then, as now, the Federal Reserve was poised to tighten monetary policy. The Fed's move that year helped trigger another downturn and a bear market. In a letter to investors, Mr. Dalio wrote, "we can't tell you what will happen when the Fed tightens this time around." Benjamin Roth took notes about what did happen eight decades ago, and hit upon a few insights that could prove useful if the Fed's next move -- or another event -- leads to upheaval or sends stocks tumbling from recent all-time highs.... Mr. Roth's hard-won wisdom can be put to practical use today. During boom times, cash often is viewed as a drag on one's wealth, earning measly interest while stocks surge. After stocks fall, it becomes clear how valuable it is. If you enjoy following markets and want to take advantage of future opportunities, consider keeping a small portion of your overall portfolio in cash. I choose 10%, though your willingness to patiently wait in low-yielding cash may justify a different percentage. Keep it separate from an emergency fund meant to cover bills should you lose your job or suffer an unexpected illness. Make a plan ahead of time for how to deploy the cash if stocks fall, so that you won't get caught up in the heat of the moment." See also the Systemic Risk Council's comment letter to FSOC about the asset management industry.

Tech in Asia writes, "Alibaba-affiliated money market fund Yu'ebao users hit 185 million for 2014." It says, "Today Ant Financial, Alibaba's affiliated financial branch, revealed a few benchmark numbers for Yu'e bao, the company's consumer-facing money-market fund. By the end of 2014, Yu'e bao's user count hit 185 million, up more than four times the previous year's count of 43 million. The fund's worth in assets reached RMB 578.93 billion (about US$93 billion) by the year's end, marking a 200 percent annual increase. Ant financial also claims that Yu'e bao's funds generated RMB 24 billion (about US$3.8 billion) in value by year's end, amounting to RMB 139 per person. While these numbers appear massive from a birds-eye view, not all is peachy keen for Yu’ebao. The fund's size shrunk to about US$87 million last autumn, and while these latest numbers appear to show a rebound, its days of rocket growth seem to be over. Yu'ebao is the shell and banner for a money market fund run by Tianhong Asset Management. Alibaba's Ant Financial purchased a majority stake in Tianhong in late 2013 for a reported US$192 million. Yu'e bao is accessible directly in Alipay Wallet, the mobile app for Alipay, Alibaba's third-party payment software." It continues, "China's tech giants don't like to get one-upped, and other leading internet firms have also opened money-market funds similar to Yu'e bao. Tencent operates Licaitong, an analogous money market fund, and recently opened what has been described as China's first "internet bank." Baidu also has its hat in the ring, as does Xiaomi, which recently launched a money-market fund in beta."

Money market fund assets continued their up and down pattern, increasing this week after dropping last week, says ICI in its latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets increased by $16.97 billion to $2.69 trillion for the week ended Wednesday, March 25, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $4.79 billion and prime funds increased by $13.94 billion. Tax-exempt money market funds decreased by $1.76 billion. Assets of retail money market funds increased by $80 million to $892.46 billion. Among retail funds, Treasury money market fund assets decreased by $250 million to $194.27 billion, prime money market fund assets increased by $870 million to $509.11 billion, and tax-exempt fund assets decreased by $530 million to $189.08 billion. Assets of institutional money market funds increased by $16.89 billion to $1.80 trillion. Among institutional funds, Treasury money market fund assets increased by $5.05 billion to $787.46 billion, prime money market fund assets increased by $13.07 billion to $938.28 billion, and tax-exempt fund assets decreased by $1.22 billion to $70.62 billion." For the last 8 weeks going back to the beginning of February, MMF assets have seesawed up and down each week. Year-to-date assets are down $44 billion, or 1.6%." In other news, the New York Fed published a "Statement to Revise the Time of Day of the Overnight Reverse Repurchase Agreement Operation for March 31, 2015," which says, "The Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York (New York Fed) has been working internally and with market participants on operational aspects of tri-party reverse repurchase agreements (RRPs) to ensure that this tool will be ready to support the monetary policy objectives of the Federal Open Market Committee (FOMC). Regarding the overnight reverse repurchase agreement (ON RRP) operation to be conducted on Tuesday, March 31, 2015, the Desk will conduct the operation from 9:30 to 10:00 a.m. Eastern Time, several hours earlier than usual. All other terms of the exercise will remain the same."

Bloomberg writes "CCB Unit Said to Offer Europe's First RQFII Money market ETF", which says, "CCB International Asset Management Ltd. will offer Europe's first exchange-traded fund that invests in China's money market, said two people familiar with the matter. The ETF will be listed in London and will be tradeable in yuan, euro, or pounds, the people, who asked not to be identified as the plan hasn't been announced publicly, said Monday." (Note: This isn't really a "money market" vehicle, since currency fluctuations are involved, but rather a "currency" fund.) The article continues, "It will give access to China's onshore market via renminbi qualified foreign institutional investors, they said. CCB International, a unit of China Construction Bank Corp., will release an official statement in due course, the company said in an e-mail Monday." The Bloomberg piece continues, "China is certainly an attractive destination for money managers around the world, given the high yields," said `Wang Ming, chief operations officer at Shanghai Yaozhi Asset Management LLP, which oversees 2 billion yuan ($322 million) of fixed-income holdings <b:>`_. "A global environment of low interest rates will probably persist this year, so yuan assets will continue to be attractive." Yu'EBao, China's largest money-market fund with 579 billion yuan of assets under management, offers a return of about 4.5 percent, according to data released on the website of Tianhong Asset Management Co., the investment vehicle's manager. That compares with the one-year local benchmark deposit rate of 2.5 percent. There are around 40 ETFs registered in the U.S. tracking China's shares and debt." Also, in other news, The Washington Post published the story, "G Fund's Return Would Drop to Nearly Zero Under House Plan," and The Wall Street Journal wrote Monday, "After Seven Years, Shadow Credit Finally Recovers." The latter story says, "Seven years after the financial crisis, a key form of lending among financial institutions finally appears to have bottomed out, a reversal that could presage a long-awaited uptick in U.S. economic growth. The New York-based Center for Financial Stability says that February showed an increase in the short-term credit that circulates among investment banks like Goldman Sachs Group Inc. and big non-bank managers of money-market funds such as Vanguard."

SEC Chair Mary Jo White testified on "Examining the SEC's Agenda, Operations and FY 2016 Budget Request" before the House Committee on Financial Services yesterday, and briefly mentioned money market funds. She said, "In July 2014, the Commission adopted significant reforms for governing money market mutual funds. The amendments are intended to reduce the risk of runs in money market funds, provide important tools to help further protect investors and the financial system in a crisis, and enhance the transparency and fairness of these products for America's investors. Under the new rules, "institutional prime" money market funds will be required to maintain a floating net asset value based on the current market value of the securities in their portfolios. The rules also provide new tools for boards of directors of money market funds to directly address heightened redemptions in a fund. Specifically, fund boards will be able to impose liquidity fees or to suspend redemptions temporarily, also known as "gates," if a fund's level of weekly liquid assets falls below certain thresholds. The Commission provided for approximately a two-year transition period for these new provisions to enable both funds and investors time to fully adapt their systems, operations, and investing practices. The new rules also enhance money market fund disclosure requirements. Money market funds will be required to promptly disclose certain significant events, including the imposition or removal of fees or gates, portfolio security defaults, and instances of sponsor support. In addition, money market funds will be required to disclose additional key information on their website on a daily basis, including funds' liquidity levels, net shareholder flows, and market-based net asset values per share." Also, Fed Vice Chair Stanley Fischer spoke Monday in New York on the "Monetary Policy Lessons and the Way Ahead," where he commented on the Fed's RRP program. "We also plan to use an overnight reverse repurchase agreement (ON RRP) facility, as needed. In an ON RRP operation, counterparties may invest funds with the Fed at a given rate, possibly subject to a cap on the aggregate amount invested. Because ON RRP counterparties include many money market participants that are not eligible to receive IOER, the facility can be a powerful tool for controlling money market interest rates. Indeed, testing to date by the New York Fed suggests that ON RRP operations have generally established a soft floor for such rates. However, an ON RRP program also has certain risks. For example, a large and persistent program could have unanticipated and adverse effects on the structure of money markets. In addition, in times of stress, demand for the safety and liquidity of ON RRPs with the central bank might increase sharply, potentially exacerbating disruptive flight-to-quality flows. To mitigate these risks, the FOMC has agreed that it will use an ON RRP facility only to the extent necessary and will phase it out when it is no longer needed. In addition, the Fed has been discussing and testing other supplementary tools, such as term reverse repurchase agreements and term deposits, and can use these tools as needed to help support money market rates."

Dennis Lockhart, President and CEO of the Atlanta Federal Reserve Bank, delivered a speech Friday, entitled, "Thoughts on Prudential Regulation of Financial Firms," where he shared concerns about shadow banking and, more specifically, money market funds. He said, "Today I would like to explore questions related to prudential regulation as it applies to banks and nonbank financial firms. More specifically, I'll contrast prudential regulation of banks and so-called shadow banks, or firms that play a role in the shadow banking system.... Another component of the shadow banking system that has received a lot of attention is the money market mutual fund industry. Money market funds have drawn attention because of the aggregate scale of the industry and the quasi-deposit nature of shareholder investments in these funds. The concern in the regulatory community -- including the Fed -- regarding money market funds relates to the industry's size and perceived vulnerability to runs in times of financial turbulence. Current regulation of money market funds by the U.S. Securities and Exchange Commission allows only a very limited range of investments and tenors. There is considerable correlation among constituent funds that results from this tight regulation. The industry has about $2.7 trillion of liabilities. Almost 40 percent of that is in funds that hold only government and government agency securities. And almost two-thirds of the $2.7 trillion in invested assets represents investments by institutional clients. There is some basis for concern about the industry's potential role in an episode of financial instability. In the fall of 2008, a prime fund -- the Reserve Primary Fund -- "broke the buck" due to holdings of Lehman Brothers commercial paper. In the week or so that followed, roughly $500 billion flowed out of prime money market funds into government money funds. Prime funds met redemptions through decreases in commercial paper holdings, prompting a crisis in that market for issuers. The Federal Reserve quickly stood up market support facilities to address the crisis in short-term markets. The money market fund sector remains a focus of regulators because of its potential to be both contributor to and victim of financial instability." He concludes, "At the beginning of my remarks, I argued that the experience of recent years has made the primary aim of prudential regulation to protect the financial system's ability to support the general economy. In my view, this should be the "true north" of any expansion of the regulatory overlay on shadow banking."

A press release entitled, "Federated Investors' Ohio Municipal Cash Trust to Acquire $91 Million in Assets from Touchstone Ohio Tax-Free Money Market Fund," says, "Federated Investors, Inc., one of the nation's largest investment managers, and Touchstone Advisors, Inc., have reached a definitive agreement regarding the acquisition by Federated of certain assets relating to Touchstone's management of the Touchstone Ohio Tax-Free Money Market Fund, a series of Touchstone Tax-Free Trust. In connection with the acquisition, approximately $91 million in tax-free money market assets will be reorganized from the Touchstone Ohio Tax-Free Money Market Fund into Federated Ohio Municipal Cash Trust, a portfolio with a similar investment objective. Established in 1990, Federated Ohio Municipal Cash Trust has approximately $391 million in net assets and is a portfolio of the Federated Money Market Obligations Trust, which has approximately $184 billion in aggregate net assets. With approximately $19 billion in tax-free, state-specific money market assets under management, Federated offers more tax-free state money market products than any other investment manager. "Federated's experience in handling these types of transactions and our commitment to providing a variety of liquidity-management solutions for our clients provide an ideal opportunity for the shareholders of the Touchstone fund to transition to Federated," said Joe Machi, director of alliances at Federated. "As a leading provider of cash management services, Federated regularly works with organizations of many types and sizes as they evaluate their liquidity-management needs, and we continue to seek opportunities for mutually beneficial transactions." It continues, "In light of the changing regulatory landscape with respect to money market funds, we sought a party that had a commitment to the money market fund business. Federated offers shareholders of the Touchstone Ohio Tax-Free Money Market Fund the opportunity to continue their investments in a larger fund with comparable investment objectives, investment strategies, tax benefits, expenses and performance," said Steve Graziano, president of Touchstone Investments. The reorganization is expected to be tax-free and is anticipated to be completed in the second quarter of 2015. Closing of the transaction is subject to shareholder approval and certain other contingencies." In our March 5 "News", we reported, "Touchstone Rescinds Liquidations, Moves to Dreyfus, saying Touchstone was transitioning three of its money funds to Dreyfus. SEC filings said a fourth, Touchstone's Ohio Tax free MMF would be reorganized "into a comparable money market fund advised by a third-party investment manager (the "Acquiring Fund"). The Acquiring Fund would have a similar investment objective and expenses to those of the Fund." In other news, the New York Fed updated its "Reverse Repo Counterparties List," removing the Reich & Tang Daily Income Fund, which is being liquidated and possibly moved to Federated. (See our March 17 News, "Federated In Talks with Reich & Tang Over MMF Assets.")

Money market fund assets declined this week, likely due to corporate tax payments, after rising last week says ICI in its latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets decreased by $19.18 billion to $2.67 trillion for the week ended Wednesday, March 18, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) increased by $1.58 billion and prime funds decreased by $20.66 billion. Tax-exempt money market funds decreased by $100 million. Assets of retail money market funds increased by $1.29 billion to $892.38 billion. Among retail funds, Treasury money market fund assets increased by $290 million to $194.52 billion, prime money market fund assets increased by $680 million to $508.24 billion, and tax-exempt fund assets increased by $330 million to $189.61 billion. Assets of institutional money market funds decreased by $20.47 billion to $1.78 trillion. Among institutional funds, Treasury money market fund assets increased by $1.29 billion to $782.41 billion, prime money market fund assets decreased by $21.34 billion to $925.22 billion, and tax-exempt fund assets decreased by $420 million to $71.85 billion." Money fund assets fell for the first 5 weeks of 2015, then they've alternated between increases and decreases the past 6 weeks. Year-to-date, money fund assets have declined by $61 billion, or 2.2%.

Bloomberg reported, "Federated, BlackRock Mull Private Money Funds Amid Rules." The article says, "Regulators' attempts to prevent another run on the $2.7 trillion money-market fund industry is having some unintended consequences. Some of the largest fund providers, led by Federated Investors Inc. and BlackRock Inc., are considering offering private funds with a fixed $1 dollar share price as an alternative to institutional prime funds that were forced last year to adopt a floating price. Invesco Ltd. is discussing several alternatives with clients, including letting them move money into its existing private pool, said Lu Ann Katz, who heads the firm's global liquidity business. Abandoning the stable share price was among the key changes the U.S. Securities and Exchange Commission introduced last year to make the biggest money funds safer. Opponents unsuccessfully argued that the change could drive large corporations to look for alternatives. If the money managers go ahead with their plans, billions of dollars may end up leaving the regulated funds and move into pools that are largely outside the reach of the SEC." It continues, "Money managers are responding with a range of alternatives before the rule goes into effect October 2016. Fidelity Investments plans to convert several of its prime money market funds to ones that buy only securities issued or backed by the U.S. government.... Others, including Vanguard Group and Legg Mason Inc.'s Western Asset Management Co., are offering ultra-short bond funds with fluctuating share prices for investors who want more yield.... BlackRock plans to give clients a choice of different variations of government, prime, municipal and short-duration funds as well as separate accounts, Tom Callahan, co-head of cash management at the firm, said in a statement. The world's largest money manager is also considering private pools for clients, according to a person familiar with the matter, who asked not to be identified because the plans are preliminary. "We are in active dialogue with our clients, and are learning that different client types have particular sensitivity to different elements of these new regulations," said Callahan, who didn't elaborate beyond the statement. Private pools could be an option for investors who find a floating share price and redemption gates unsettling, but who want higher returns from their money funds, said Invesco's Katz. Federated, one of the largest providers of money-market mutual funds with more than $258 billion of those assets, is giving investors options including separate accounts, offshore funds and government pools, Chris Donahue, chief executive officer of Pittsburgh-based Federated, said in a fourth-quarter earnings call. It is also proposing to limit some of its funds to securities that mature within 60-days since the SEC allows that debt to be valued at cost. "We are also working on developing privately placed funds in attempt to mirror existing Federated money market funds to serve the needs of groups of qualified, usually institutional investors unable to use money funds modified by the new rules," Donahue said."

The Investment Company Institute recently issued a "Supplemental Letter to IRS and Treasury regarding Money Market Fund Reform Tax Guidance regarding the IRS & Treasury's "Proposed Guidance on Taxation of Money Market Funds." The letter, dated March 11, was addressed to the Treasury's Michael Novey, Associate Legislative Counsel, and the IRS's Steven Harrison Branch Chief, Branch 1 Office of Associate Chief Counsel (Financial Institutions and Products). It was authored by ICI's Karen Lau Gibian, Associate General Counsel -- Tax Law, and says, "The Investment Company Institute is pleased to provide additional information in response to questions raised at the public hearing on recently proposed regulations regarding the taxation of money market funds with floating net asset values ("NAVs"). Specifically, this letter addresses: Permitting use of the NAV method on an account-by-account basis; Aligning use of the NAV method by regulated investment companies ("RICs") for income and excise tax purposes; Clarifying the definition of "fair market value" for purposes of the NAV method; and Permitting existing money market funds with both retail and institutional investors to separate into two separate funds in a tax-free manner. In addition to these points, the Institute plans to ask for additional guidance that was not requested in our original comment letter. It has come to our attention that some investment advisors are discussing the possibility of making payments to existing institutional money market funds to bring the NAV up to $1.0000 before the compliance date for the final Securities and Exchange Commission ("SEC") money market fund rule. The Institute plans to seek guidance regarding the proper tax treatment of such payments. Given the time sensitivity of the issues described above, however, the Institute plans to submit a separate letter in the near future regarding advisor contributions. The Institute appreciates the efforts of the Treasury Department and the Internal Revenue Service ("IRS") to issue final guidance on floating NAV money market funds in a timely manner. We hope that this supplemental information will be useful as the government works to finalize the guidance prior to implementation of the final SEC money market fund rule." (Click here to read the full 27-page letter.)

Barclays' Joseph Abate writes "Regulatory Reform: Repo-cussions" in his latest update. The summary says, "[W]e take a closer look at how recent bank reforms have changed the size, scope, and nature of the $2.5trn repo market. We also explore how these challenges are likely to intensify in coming years. Repo volumes have shrunk in two waves since March 2008. The recent decline appears to be driven by several factors in addition to regulatory pressure. The effect of tougher bank regulation on the repo market extends beyond trading volumes. Capital requirements appear to have the most significant effect on repo volumes. Net stable funding requirements will amplify the effect. The liquidity coverage ratio seems to be influencing the mix of collateral pledged. As regulatory deadlines approach, we expect these mix and volume effects to intensify. Non-Fed tri-party repo may contract 20% in the next year or so. While further volume reduction and collateral shifts will likely produce market "winners" and "losers," they will also spur market changes and alter the way banks and dealers think about the business." It concludes, "Most people pay little attention to plumbing, provided it works properly. The repo market has long been considered a dull part of the financial market plumbing, largely overlooked by many until it stops working, as it did during the financial crisis. However, just as plumbing attracts considerable focus when the taps run dry (or otherwise), this mundane market is about to get significantly more attention. Regulatory reform is likely to shrink the market further and reduce the role of banks and dealers as intermediaries in the exchange of collateral and cash. Similarly, balance sheet scarcity is likely to lead to further spread widening with clear winners (banks) and losers (long-only investors who cannot net trades). At the same time, the Fed's efforts to put a floor under short-term interest rates is likely to increase the central bank's presence in the repo market despite its discomfort with the RRP program."

The 25th largest money market fund family, Reich & Tang, has decided to liquidate its money market funds, citing regulatory changes. The press release, entitled, "Reich & Tang Announces Liquidation of its Money Market Mutual Funds," says, "Reich & Tang Asset Management, LLC today announced that the Board of Directors for each of its money market mutual funds has approved plans of liquidation for those funds. The liquidations, which represent approximately $9.5 billion in shareholder assets, are expected to be completed by July 31, 2015. After more than four decades Reich & Tang is moving away from its investment management business. "Our newest chapter is written," said Michael Lydon, Reich & Tang's President and Chief Executive Officer. "Given the ongoing regulatory changes that are being added to the already challenging landscape for money funds, the ability for mid-tier money fund sponsor firms to thrive has become significantly diminished. It is our responsibility to ensure that shareholders' best interests are being served at all times, and our process over the next few months will better help shareholders to stay that course." In shedding the investment management business, the firm will focus on growing its successful FDIC-insured deposit programs that provide valuable solutions to banks, trusts, brokerages, RIA's, and other private and public investment programs. Lydon adds, "The company was built on its expertise in cash management and this fine-tuning of our product line is a direct result of our ability to adapt our business to meet the needs of our customer base. This foundation of more than 40 years' experience has helped us to uncover further opportunities to grow relationships through our leading FDIC-insured sweep and funding programs, areas that will be our focus going forward." Reich & Tang is nationally recognized as a competitive provider of funding for banks as well as having one of the longest track records in extended FDIC- insured sweep programs in the bank and brokerage spaces. "The streamlining of our operations to focus on our FDIC deposit programs enables Reich & Tang to invest all of its resources into these programs and carve deeper into its niche as an expert in the deposit, liquidity, and short-term capital markets," concluded Lydon. Reich & Tang is an affiliate of Natixis Global Asset Management, one of the world's largest asset managers with $890 billion in assets under management as of December 31, 2014." In other news, ICI released its latest "Money Market Mutual Fund Assets" report, which says, "Total money market fund assets increased by $18.19 billion to $2.69 trillion for the week ended Wednesday, March 11."

The Securities and Exchange Commission released its latest "Money Market Fund Statistics" report, with data as of January 31, 2015. The report summarizes Form N-MFP data and which includes totals on assets, yields, liquidity, WAM, WAL, holdings, and other money market fund trends. The data is produced by the SEC's Division of Investment Management. Overall, total money market fund assets stood at $3.057 trillion at the end of January, down $24 billion from Dec. 31, 2014, according to the SEC's broad total (which includes many private and internal funds not reported to ICI, Crane Data or other reporting agencies). Of the $3.057 trillion, $1.769 trillion was in Prime funds (down $3B from Dec. 31), $1.019T was in Government/Treasury funds (down $19B), and $268 billion was in Tax-Exempt funds (down $2B). The number of funds dropped by 2 in Jan. 2015 to 544. Looking at other statistics, the Weighted Average Gross 7-Day Yield for Prime Funds was 0.21% on Jan. 31 (up 0.01%), 0.08% for Government/Treasury funds (unch.), and 0.06% for Tax-Exempt funds (down 0.01%). The Weighted Average Net Prime Yield was 0.05% (Govt and Tax-Exempt net yields were 0.01%), and the Weighted Average Prime Expense Ratio was 0.16% (up 0.01%). The Weighted Average Life, or WAL, for Prime funds at month-end was 77.8 days (up from 76.6 days on Dec. 31, 2014), for Government/Treasury funds was 79.7 days (up from 74.9), and for Tax Exempt funds was 34.0 days (down 3.2 days). The Weighted Average Maturity, or WAM, for Prime funds was 43.5 days (up 0.7 days), for Govt/Treasury funds was 43.7 days (up 0.2 days), and for Tax-Exempt funds was 33.0 days (down 3.3 days). Total Daily Liquidity for Prime funds was 25.7% in January (up 3.2% from last month), while Total Weekly Liquidity was 40.6% (down 0.8%). In the category Prime MMF Holdings of Bank Related Securities by Country, the US topped the list with $203.5 billion, just ahead of Canada at $200.8 billion. France was third with $184.7 billion, followed by Japan at $171.7B, Sweden at $116.0B, the U.K. at $101.8B, and Australia/New Zealand at $100.5B. The Netherlands ($60.8B), Switzerland ($50.9B), and Germany ($49.0B) round out the top 10. For Prime MMF Holdings of Bank-Related Securities by Region, Europe had $626.2 billion in while its subset, the Eurozone, had $315.4. The Americas was next with $407.1 billion, while Asia and Pacific had $303.5 billion. The Total Amortized Cost of Prime MMF Portfolios was $1.771 trillion as of Jan. 31, 2015. That was made up of $611 billion in CDs, $372 billion in Government (including direct and repo), $425 billion in Non-Financial CP and Other Short term Securities, $264 billion in Financial Company CP, and $98 billion in ABCP. Also, the Proportion of Non-Government Securities in All Taxable Funds was 49.5% at month-end. All MMF Repo with Federal Reserve was $173.2 billion on Jan. 31, 2015, down from $371.1 billion at year-end. Finally, the Trend in Longer Maturity Securities in Prime MMFs said 42.4% were in maturities of 60 days and over, while 11.6% were in maturities of 180 days and over.

Dreyfus recently released a statement entitled, "Successfully Navigating a Changing Money Market Environment," which outlines its post-MMF reform strategy (we learned from Wells Fargo Strategist Garret Sloan). It says, "At Dreyfus, the needs of our clients and partners are paramount. To that end, we invested a considerable amount of time and effort to better understand your ideas and opinions on how best to structure our products and services in a manner that will serve those needs, consistent with the new money market fund regulations adopted in July 2014. We expect to integrate that feedback with our deliberations on a number of critical money market fund product line-up issues, including the following: 1. Offering Institutional prime and municipal money market mutual funds with variable net asset values; 2. Working out how to provide same-day liquidity within a variable net asset value money market fund; 3. Reviewing the efficacy of offering an Institutional money market fund that restricts investments to securities with remaining maturities of 60 days or less; 4. Offering Government/Treasury money market funds without the potential imposition of standby liquidity fees and gating mechanisms; 5. Structuring a number of our existing money market funds so as to meet the Rule 2a-7 definition for a "Retail money market fund" and thus be able to offer fund shares at a stable $1 net asset value; and 6. Supplementing our registered fund product line-up with select unregistered products for qualified investors. Recognizing that money market fund regulations may be changing the way you think about cash, please keep in mind that Dreyfus currently offers various cash products that seek current income, principal preservation, and/or return potential across the short duration spectrum. These product offerings include: 1. Domestic and offshore money market funds. 2. Separately managed accounts (duration ranging from 60 days–three years), 3. A short duration bond mutual fund, 4. Sub-advisory capabilities. From among these products, Dreyfus can help you create an account plan that employs a "tiered" investment strategy.... Your inventory of cash can be allocated into building blocks that may provide the desired liquidity and high current income for your overall portfolio. Please be assured that Dreyfus will continue to offer a diverse array of cash management products to meet the various needs and requirements of institutional and retail investors. We appreciate all the comments we have received to date and will continue to communicate progress in implementing the SEC reforms over the next 20 months. Thank you for your trust and loyalty." In other news, the NY Fed released a "Statement Regarding Reverse Repurchase Transaction Counterparties." It says, "On November 12, 2014, the Federal Reserve Bank of New York (the New York Fed) announced the application submission deadline for the final wave of reverse repurchase agreement (RRP) counterparties. The 25 new RRP counterparties selected from this last wave were added to the complete list of RRP counterparties on January 16, 2015. The new counterparties have now completed the legal, operational and technical setup and are expected to be able to fully participate in the RRP operations with the New York Fed on March 16. All RRP counterparties are expected to satisfy the continued eligibility criteria previously set forth."

The Wall Street Journal published "Prepare for New Money Market Fund Rules," which outlines three things investors should know about upcoming changes to money funds. The article says, "1. Understand types of funds. Money funds can be divided into three categories according to their investments: prime funds; "government" funds, which invest in U.S. government and federal agency debt; and municipal funds, which invest in the debt of state and local governments. The new rules will create another distinction: Many money funds now mingle the investments of institutional and individual, or retail, investors. But because the new rules make a distinction between institutional and retail investors, fund companies are working toward separate institutional and retail funds. Understanding all these distinctions is important because institutional funds will be subject to more rule changes than retail funds, and government funds will be subject to fewer changes than prime or municipal funds. Those differences in the new rules will drive the changes fund companies make in their funds' investments and structure. 2. Know what you want Money funds are yielding little -- currently an average of 0.03% a year, or $3 on a $10,000 investment, according to Crane Data LLC, a money-fund research company. But government and municipal funds typically yield even less than prime funds. That's because prime funds are able to invest in a wider range of securities. That leaves investors with a choice: Should they invest in a fund that could earn more but be more risky, or put money in a safer fund that will probably yield less? Many investors will confront that choice as their funds switch from prime to government funds. 3. Watch the paperwork. Fidelity and Federated are also merging several of their money funds, meaning some funds will cease to exist. Typically, this should be an easy process for investors, who will automatically be moved into the new fund, with no tax implications, fund companies say. But investors should make sure the new fund is investing in the same way."

Citi Research's Short Duration Strategy team released the results of its "2015 Citigroup Money Market Industry Survey" late Friday, which shows how investors view money market funds in light of the SEC reforms. The summary says, "We present the results of the recently concluded survey, which was conducted in order to gauge investor sentiment after the new 2a-7 rules. Approximately 247 investors participated in the survey, though not everyone answered all 10 questions. Please note that for some of the questions that were raised in the survey, our view may not align with the prevailing view." It continues, "More than half of the participants (51.1%) believe that investors would move assets from prime funds due to both gate/fees and the floating NAV restrictions, while about a third (34%) find gates/fees to be the antagonizing factor. 124 participants (50.2%) believe that assets worth $200-$400 billion would leave institutional prime funds, while 121 (48.9%) participants believe assets worth less than $100 billion would leave retail prime funds. The new 2a-7 rules are set to take effect in October 2016 and 40% of the participants expect the IOER to be in the range of 0.75%-1.25% during that time. 70% of the participants expect the size of the Fed's ON RRP program to increase over the next 18 months. T-bill issuance is expected to remain almost constant over the next 18 months, according to 61.7% of the participants. Over the next 18 months 59.6% of the participants expect a decrease in the issuance of short credit (commercial paper, bank CDs and time deposits). Historically, spreads between prime and government funds have averaged 10-15bp. By October 2016, 42.6% expect this spread to be in the range of 15–25bp range while 40.4% expect it to be in the range of 25–40bp. 36.2% of the participants believe that outflows from the prime funds could stop or even reverse if the spread between prime and government fund yields increases to around 25–40bp. Interestingly, one quarter of the participants do not foresee a reversal at all. For investors with VRDN holdings, around 40% would want the spread between comparable taxables and VRDNs to exceed 10bp before they would consider switching out of VRDNs into taxables."

Following a rebound last week, money fund assets fell this week says ICI in its latest weekly "Money Market Mutual Fund Assets" report. The release says, "Total money market fund assets decreased by $18.60 billion to $2.67 trillion for the week ended Wednesday, March 4, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (including agency and repo) decreased by $8.15 billion and prime funds decreased by $11.22 billion. Tax-exempt money market funds increased by $780 million. Assets of retail money market funds decreased by $2.57 billion to $893.52 billion. Among retail funds, Treasury money market fund assets decreased by $1.57 billion to $194.51 billion, prime money market fund assets decreased by $1.18 billion to $509.53 billion, and tax-exempt fund assets increased by $180 million to $189.49 billion. Assets of institutional money market funds decreased by $16.04 billion to $1.78 trillion. Among institutional funds, Treasury money market fund assets decreased by $6.59 billion to $773.52 billion, prime money market fund assets decreased by $10.05 billion to $932.98 billion, and tax-exempt fund assets increased by $600 million to $72.37 billion." Year-to-date, money fund assets have decreased by $61 billion, or 2.2%. In other news, two Prime Retail MMF have been liquidated, the $9 million RBB Bedford Money Market Fund and the $1 million RBB Sansom Street MMF. The SEC filing says, "On December 5, 2014, the Board of Directors of The RBB Fund, Inc. (the "Board") approved a plan of liquidation and termination for the Money Market Portfolio (the "Fund").... On or about January 30, 2015 (the "Liquidation Date"), the Fund will redeem all investors' shares at net asset value, and the Fund will terminate. Investors holding shares of the Fund on the Liquidation Date will receive cash representing proceeds from the redemption. Absent other instructions, the cash proceeds will be distributed by mailing a check to each investor of record at such investor's address of record."

The Association for Financial Professionals (AFP) published an article, "MMFs or SMAs? Why a Hybrid Approach Can Work." The piece, written by Tyler Haws from Clearwater Analytics, says, "With the persistent downward pressure on interest rates, many treasury and finance professionals find it difficult to balance preservation of capital and liquidity with the desire for higher yields. Depending on your organization's liquidity needs and appetite for risk, you may have considered a direct investment or separately managed account (SMA) strategy if: you want higher returns than those produced by money market funds (MMFs); you want greater transparency and control over your portfolio; or you are preparing for regulatory changes in the MMF industry. But while many recognize the potential benefits of SMAs, they are reluctant to enact the operational changes they would need to make SMAs a part of their investment approach. There's an outdated general industry perception that an SMA strategy would create an unnecessary administrative burden, introduce downstream accounting challenges, and require a more hands-on approach to investing than many are ready to accommodate. But are these concerns valid?" It continues, "To get a pulse on how companies in North America are investing, Clearwater Analytics surveyed thousands of treasury and finance professionals last year. The 2014 Corporate Investment Benchmark Survey revealed that 79 percent of respondents invest in both MMFs and SMAs, while 21 percent deploy an MMF-only strategy. For those investing solely in MMFs, 24 percent are considering SMAs, while 75 percent are sticking with an MMF-only approach. According to respondents, the core reasons to maintain their MMF-only approach were: immediate liquidity, preservation of capital, and a simplified accounting structure. The survey also polled investors' concerns with MMF reform. Overwhelmingly, the top concern was the floating net asset value (NAV) requirement for prime funds, followed by the potential downstream accounting implications of the floating NAV. Liquidity and general uncertainty were the next two areas of concern. Because reforms will not take effect until 2016, many investors have adopted a wait-and-see approach to reform before implementing changes to their approach to MMF investing and accounting processes, at least until more guidance is issued. `We do, however, expect to see a rush of activity in the spring of 2016, when this topic becomes top-of-mind for treasury and accounting professionals. MMFs and SMAs are both important -- if slightly different -- investment strategies. MMFs serve a vital liquidity function, while SMAs provide the opportunity to achieve returns that are higher than what is possible with an MMF-only approach. A hybrid approach allows organizations to maintain liquidity, preserve capital, and still find returns for a portion of their portfolios."

The Investment Company Institute is preparing to host several conferences in the coming weeks. Though none of the events have money funds on their agendas, all will discuss issues involving financial stability, SIFIs, and bond market risk (and attendees will no doubt be discussing MMFs). ICI will host its forum for lawyers and accountants, the 2015 Mutual Funds and Investment Management Conference March 15-18 in Palm Desert, Calif., and its 2015 General Membership Meeting May 6-8 in Washington. The Institute will also host a special "Conference on Financial Stability and Asset Management" next Wednesday, March 11 in Boston. (The Irish Fund Industry Association has its "Boston Road Show" that same day too.) A release on the ICI's event next week says, "Academics, former regulators and asset management leaders will convene in Boston -- birthplace of the first U.S. mutual fund -- to discuss and debate the modern-day public policy issue of asset management and financial stability regulation. The Boston University (BU) Center for Finance, Law & Policy and the Investment Company Institute (ICI) are cosponsoring the Conference on Financial Stability and Asset Management on March 11 on BU's campus. The conference will explore the mandate of U.S. and global regulators to examine and potentially designate nonbanks -- including asset managers -- as "systemically important financial institutions" (SIFI), and the consequences of such designations and "prudential regulation" for funds, capital markets, and investors. SEC Commissioner Daniel M. Gallagher and Sir Paul Tucker, Former Deputy Governor Bank of England, will debate the differences between capital markets and banking, including the two areas' respective economic roles and regulation. Cornelius K. Hurley, Director of BU's Center for Finance, Law & Policy, will give opening and closing remarks. ICI Chief Economist Brian Reid will start the day’s discussion with an overview of the asset management industry." Click here for the full agenda and click here to register. (The fee is $150 per person.) The SEC's Gallagher was cited in a story by Bloomberg, "Corporate Bond Market Poses Systemic Risk, Says SEC's Gallagher." The lead says, "A lack of liquidity in corporate-bond markets could pose a "systemic risk" to the economy when interest rates rise, U.S. Securities and Exchange Commission member Daniel Gallagher said." In other news, the Financial Times wrote, "European Money Market Fund Reforms Likened to 'Hand Grenade'." It says, "Long-awaited reforms proposed for Europe's E1tn money market fund sector have left both the industry and its most visceral opponents equally unhappy.... E1tn is a significant chunk of the short-term debt market in Europe and this is like throwing a hand grenade into it. It is not pretty," one industry figure told FT. "There are piles of garbage in [the proposals]. We had hoped for something much, much better."

A press release published late yesterday entitled, "West Virginia Selects Federated Investors to Manage $1.2 Billion in State Money Market Pool," says, "Federated Investors, Inc., one of the nation's largest investment managers, today announced that the West Virginia Board of Treasury Investments has selected Federated Investment Counseling -- a Federated Investors subsidiary registered as an investment adviser -- to manage the $1.2 billion West Virginia Money Market Pool. In managing the statewide money market portfolio, Federated will be responsible for the investment of state and local government operating funds, with the objectives of maintaining sufficient liquidity for participants while providing above-inflation returns. "Federated emerged with the strongest of the 12 proposals submitted by investment managers seeking to administer West Virginia's money market pool," said John D. Perdue, state treasurer. "The evaluation committee’s selection was based upon technical evaluation of all proposals, oral presentations and site visits to the three finalists." Federated is the largest provider of liquidity management services to state pools and an experienced manager of state and municipality assets, providing portfolio management and credit analysis, as well as field marketing and participant point-of-contact services, for state and local governments nationwide. Federated also manages state investment pools for Florida, Massachusetts and Texas. Founded in 1955, Federated Investors, through its advisory subsidiaries, has managed money market products since 1974 and manages more than $258 billion in money market assets. "Federated has a longstanding history of working with state treasurers to deliver customized investment solutions, and we are honored that West Virginia has selected Federated to manage its money market pool," said J. Christopher Donahue, president and chief executive officer of Federated Investors, Inc. "We look forward to continuing to establish relationships that provide government investment pools with compelling high-quality liquidity management services, as well as fixed-income investment opportunities.""

Fitch Ratings issued a report, "Money Fund Managers Show Varied Appetite for ABCP." The press release says, "U.S. money fund investments in asset-backed commercial paper (ABCP) conduits have been declining in line with outstanding supply in the market, according to Fitch Ratings. During the 12 months ended January 2015, U.S. ABCP outstandings fell $22.5 billion to a total of $234.6 billion. During the same stretch, money fund investments in ABCP shrank by $1.8 billion to a total of $91 billion, representing a 1.9% drop, smaller than the 8.8% decline in the ABCP market broadly. Despite the overall reduction in money fund holdings of ABCP, there are clear differences in ABCP appetite among fund managers. While Fidelity and Vanguard, two of the largest U.S. prime money fund managers, held only negligible amounts of ABCP as of January 2015, other large managers reached double-digit allocations to this asset type. Among the 10 largest U.S. prime money fund managers, Wells Fargo had the greatest allocation to ABCP as a percentage of total assets at 21% and in fact continued to increase its allocation over the past few months. Individual fund allocations to ABCP reflect the respective managers' preferences, but across a wider spectrum, ranging from 0%-33% of assets for U.S. prime funds. As of January, 56 individual prime money funds placed more than 10% of their assets in ABCP conduits, with 25 surpassing 20% of exposure, and 30 holding no ABCP at all. Money funds continue to represent a large portion of ABCP investors, at 39% of total outstandings as of January 2015, and can have a significant impact on the market. Individual fund managers' ability to sway the ABCP market is a factor of the size of their assets under management and appetite for ABCP. Managers such as BlackRock and Wells Fargo have sizable money fund portfolios and large allocations to ABCP, each controlling more than 5% of the ABCP market. Strategies for allocations to ABCP vary across fund managers and reflect varying degrees of risk appetite, sensitivity of key clients, available resources, and other qualitative factors. Despite the strong features and performance of ABCP conduits post-crisis, the sector retains a negative reputation with some money fund investors based on their pre-crisis experience."

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