Daily Links Archives: May, 2019

Treasury Today features the brief, "MMF regulations: raising investor expectations," which briefly reviews European money funds post-reform. Aviva Investors' Caroline Hedges writes, "When money market fund (MMF) reform came into force for US and European markets (2016 and 2019 respectively), it was part of the ongoing response to the global financial crisis of 2007/08. In keeping with the perceived general need for systemic stability in financial services, banks have undergone a huge regulatory overhaul, notably around capitalisation. This is intended to help them withstand the worst effects of another crisis. It was natural that the reformers would focus next on the so-called 'shadow-banking' sector, of which money markets are a systemically important component. The reform of money markets was lobbied for by key participants, including Aviva Investors. We had already changed our CNAV fund to VNAV (variable net asset value) in 2008, believing that CNAV was no longer a suitable model for our clients. Indeed, with assets fluctuating in value -- floating rate notes were especially volatile during the financial crisis -- the risk of realised losses (or even defaults) was real. Action was required. The efficacy of the regulatory response is yet to be tested by market failure. However, a key element -- the low volatility net asset value (LVNAV) fund, which saw Aviva Investors become the earliest adopter amongst established funds -- incorporates a mechanism ensuring such funds remain open in times of extreme stress." She adds, "With Aviva Investors, and other fund managers, committed to integrating environmental, social and governance (ESG) themes into our funds, there is a clear commitment to helping clients who may lack the resources to screen investments in this space too. MMF regulations have come at a time when the financial sector needs more clarity and security. The market has responded positively, helping to build investor confidence in what was, frankly, already a robust proposition."

The London-based Institutional Money Market Funds Association (IMMFA), a trade group which represents AAA-rated money market funds in Europe, is hiring, we learned from their website. A "Job Description" for a new IMMFA Secretary General says, "Reports to: Chair and Board of IMMFA." "Key Responsibilities" include: "To work with the Board in developing and implementing the strategic direction of the Association; To lead and deliver key initiatives for IMMFA; To promote the identification and maximisation of opportunities to distribute MMFs, particularly in the light of regulatory change; To promote industry education; To represent the Association, membership and the industry to third parties, including promoting money market funds throughout Europe to potential investors, the media and others and developing the standing and influence of the Association; To lobby European legislators and regulators and other relevant bodies for appropriate understanding and treatment of money market funds; To build and manage strong relationships with key European bodies, including other trade associations, regulatory bodies and the membership; To lead and manage the day-to-day business of the Association, including the organisation of IMMFA meetings, the production and distribution of newsletters, circulars and other communications to members; day to day liaison with the Board, members and other stakeholders, and management of service providers and vendors; To assist with the representation of members with the Association and handling of member sensitive information and issues; To assist in the development of best practice and IMMFA policy; To assist the Board in ensuring proper governance of the Association; and, To manage the team at the Secretariat; To own/delegate office administration eg HR, accounting, administration." Among the "Key skills and knowledge" required, the description includes: 1. Ability to build and foster strong relationships with the Board, Members and individuals at all levels; 2. A sound understanding of financial services and the regulatory framework, preferably from an investment management background; legal, compliance, regulatory and/or company secretarial experience is an advantage, particularly ex-UK; 3. European public policy making experience desirable; 4. PR/Marketing/Media/Sales background advantageous; 5. Strong leadership and strategic qualities, with proven execution abilities; 6. High integrity and professionalism; 7. Strong organisational abilities and a results-focused attitude; 8. Excellent communication and networking skills; 9. Proven negotiating and influencing skills; 10. Self-starter and ability to work independently; and, 11. Proven management competencies and ability to delegate." The job location is in London or Brussels. Current IMMFA Secretary General Jane Lowe is retiring, so we'd like to thank her for her service and wish her well!

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of May 24) includes Holdings information from 61 money funds (down from 69 on 5/17), representing $1.148 trillion (down from $1.425 trillion) of the $3.305 (34.7%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our May 10 News, "May Money Fund Portfolio Holdings: Repo, Agencies, CP Up; T-Bills Drop.") Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $436.3 billion (down from $545.1 billion a week ago), or 38.0%, Treasury debt totaling $317.8 billion (down from $418.4 billion) or 27.7%, and Government Agency securities totaling $210.1 billion (down from $267.2 billion), or 18.3%. Commercial Paper (CP) totaled $71.9 billion (up from $68.3 billion), or 6.3%, and Certificates of Deposit (CDs) totaled $51.5 billion (down from $69.4 billion), or 4.5%. A total of $36.8 billion or 3.2%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $23.6 billion, or 2.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $317.8 billion (27.7% of total holdings), Federal Home Loan Bank with $149.6B (13.0%), Fixed Income Clearing Co with $45.8B (4.0%), BNP Paribas with $45.7 billion (4.0%), Federal Farm Credit Bank with $40.4B (3.5%), JP Morgan with $35.5B (3.1%), RBC with $32.9B (2.9%), Wells Fargo with $25.3B (2.2%), Societe Generale with $23.6B (2.1%) and Barclays PLC with $23.5B (2.0%). The Ten Largest Funds tracked in our latest Weekly include: Fidelity Inv MM: Govt Port ($115.6B), BlackRock Lq FedFund ($92.8B), Wells Fargo Govt MMkt ($80.1B), Federated Govt Oblig ($75.7B), BlackRock Lq T-Fund ($64.6B), Morgan Stanley Inst Liq Govt ($59.7B), Fidelity Inv MM: MMkt Port ($58.6B), Dreyfus Govt Cash Mgmt ($54.8B), State Street Inst US Govt ($46.4B) and BlackRock Lq Trs Trust ($39.4B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

A press release entitled, "Island Intellectual Property Sues StoneCastle for $172 million," tells us, "Island Intellectual Property LLC, an affiliate of Double Rock Corp., ... filed a federal lawsuit against StoneCastle Cash Management LLC, StoneCastle Insured Sweep LLC, StoneCastle Partners, LLC., StoneCastle Financial Corp. (BANX), and StoneCastle Asset Management LLC, for patent infringement, unfair competition and misappropriation of trade secrets, breach of contract and breach of the covenant of good faith and fair dealing. The suit was filed in the U.S. District Court for the Southern District of New York." John Dellaportas, Partner at Kelley Drye & Warren LLP in New York and counsel to the plaintiff, comments, "As set forth in the Complaint, the defendants have willfully infringed Island IP's intellectual property rights. The complaint seeks $172 million in damages." The release explains, "Island Intellectual Property LLC is a wholly owned subsidiary of Double Rock Corporation and a patent holding company with approximately 60 patents covering various cash management aspects of banking and financial services. Double Rock Corporation is a leading cash management and financial technologies company providing some of the world's most innovative cash management and cash-related solutions to multiple industries." Bruce Bent II is President of Double Rock Corporation. Bent was previously with Reserve Management Corp., adviser of the infamous Reserve Primary Fund, which "broke the buck" in 2008.

A Prospectus Supplement filing for the Federated Institutional Prime Obligations Fund, a Portfolio of Money Market Obligations Trust," says about the fund's Automated Shares (PBAXX), "On May 16, 2019, the Board of Trustees of Money Market Obligations Trust approved the liquidation of the Automated Shares of Federated Institutional Prime Obligations Fund effective on or about May 17, 2019 (the "Liquidation" or the "Liquidation Date"). In approving the Liquidation, the Board determined that the liquidation of the Automated Shares is in the best interest of the Fund, the Fund's Automated Shares and its shareholders. Any shares outstanding at the close of business on the Liquidation Date will be automatically redeemed. Such redemption shall follow the procedures set forth in the Fund's Prospectus. Final dividends will be distributed with the liquidation proceeds." (Federated Inst Prime Obligs AS (PBAXX) held just $1 million in assets as of April 30, according to our latest MFI XLS. Federated Inst Prime Obligs IS (POIXX) held $17.5 billion.)

The Federal Reserve Board's "Minutes of the Federal Open Market Committee, April 30-May 1, 2019" tells us, "The deputy manager reviewed developments in domestic money markets.... In early April, the Treasury reduced bill issuance and allowed the TGA balance to fall in anticipation of individual tax receipts. As tax receipts arrived after the tax date, the TGA rose to more than $400 billion, resulting in a sharp decline in reserves over the last two weeks of April. Against this backdrop, the distribution of rates on traded volumes in overnight unsecured markets shifted higher. The effective federal funds rate (EFFR) moved up to 2.45 percent by the end of the intermeeting period, 5 basis points above the interest on excess reserves (IOER) rate. Several factors appeared to spur this upward pressure. Tax-related runoffs in deposits at banks reportedly led banks to increase short-term borrowing, particularly through Federal Home Loan Bank (FHLB) advances and in the federal funds market.... In addition, rates on Treasury repurchase agreements (repo), were, in part, pushed higher by tax-related outflows from government-only money market mutual funds and a corresponding decline in repo lending by those funds. Elevated repo rates contributed to upward pressure on the federal funds rate, as FHLBs reportedly shifted some of their liquidity investments out of federal funds and into the repo market. In addition, some market participants pointed to heightened demand for federal funds at month end by some banks in connection with their efforts to meet liquidity coverage ratio requirements as contributing to upward pressure on the federal funds rate. The deputy manager also discussed a staff proposal in which the Board would implement a 5 basis point technical adjustment to the Interest on Required Reserves (IORR) and IOER rates. The proposed action would bring these rates to 15 basis points below the top of the target range for the federal funds rate and 10 basis points above the bottom of the range and the overnight reverse repurchase agreement (ON RRP) offer rate. As with the previous technical adjustments in June and December 2018, the proposed adjustment was intended to foster trading in the federal funds market well within the target range established by the FOMC. A technical adjustment would reduce the spread between the IOER rate and the ON RRP offering rate to 10 basis points, the smallest since the introduction of the ON RRP facility. The staff judged that the narrower spread did not pose a significant risk of increased take-up at the ON RRP facility because repo rates had been trading well above the ON RRP offer rate for some time. However, if it became appropriate in the future to further lower the IOER rate, the staff noted that the Committee might wish to first consider where to set the ON RRP offer rate relative to the target range for the federal funds rate to mitigate this risk."

Five years ago, we wrote that the SEC was preparing Money Market Funds Reforms in our May 23, 2014 News piece, "SEC Intensely Focused on MF Reform, Very Near Term, Says White to ICI." We said then, "ICI's 2014 General Membership Meeting finished yesterday with a "Breakfast Session: A Conversation with SEC Chair Mary Jo White. While White didn't give any indication about whether the Commission would go with the floating NAV option (for Prime Institutional funds), the "gates and fees" (for all Prime funds), or a combination of the two, she did reiterate her comments from earlier this year that the rules would arrive in the "very near term". ICI President Paul Schott Stevens commented in the Q&A, "You knew I'd mention money market funds." White replied, "I did know that." Stevens continued, "The industry is anxiously awaiting a conclusion of the Commission's work on the money market fund rules, and it seemed to me that this would be a perfect time for some kind of announcement." White answered, "I remember last year, we had just done our proposal, and I said 'I know you want me to say more and I'm not.' Hopefully, when I'm here next year, we'll talk about what's wrong with it. Seriously, the Commissioners, the full Commission, and the Staff are intensely focused on it [MMF Reform] as we speak, completing the very important rulemaking. I expect it will be completed in the very near term. I won't say what the very near term is. But it's front and center." Our May 2014 piece added, "Some expect the SEC to release its final Money Market Fund Reform rule as early as late June, while others believe it will be late in the summer or perhaps even into September or October before we see the regulations. While we continue to believe the SEC will abandon the floating NAV and choose the "gates and fees" option on its own, the majority of other industry observers thinks that the combination of floating NAV and gates/fees is the most likely outcome at this point. Stay tuned, and we look forward to discussing the pending rules further at our Money Fund Symposium next month in Boston." (Note: Two months later, we wrote on July 23, 2014 News, "SEC Passes Final MMF Reform Rule 3-2; Final Reforms Just Like Proposed.")

The Wall Street Journal writes, "Don't Get Too Used to Higher Bank Deposit Rates." It says, "The 'good times' for bank depositors may not last much longer. Investors increasingly think the Federal Reserve is on course to cut interest rates at least once this year. That makes it likely banks could start to reverse course on deposit rates, which while still low by historical standards have climbed over the past two years. Growth in payouts to savers has already begun to stall in some deposit categories. The national average rate for a one-year certificate of deposit, for example, has risen just 0.09 percentage point, to 1.01%, this year through May, according to Bankrate.com. In 2018, that same rate more than doubled. The average rate on a five-year CD fell by 0.05 percentage point in May from April, the Bankrate.com data showed." The Journal adds, "Meanwhile, a recent report from Piper Jaffray, which looked at a range of deposit products from about 120 banks, showed that more products' deposit rates were falling than rising. Those banks lowered the rates they pay on deposits for 87 different products in the first quarter compared with 18 products for the same quarter a year ago, based on data from DepositAccounts.com. They raised rates on 149 different products in the quarter, compared with 180 a year earlier. The result: An end could be at hand for the somewhat brief period, starting around two years ago, when depositors finally began earning more than desultory interest on their money. Paltry payouts until then were the result of the Fed's near-zero interest-rate policies, enacted in the wake of the financial crisis."

A press release entitled, "ICD Appoints New CFO to Take Company Through Next Phase of Growth," tells us, "ICD, the leading independent trading and investment risk management platform, continues its investment in new executive talent with the hiring of Dave Roach as Chief Financial Officer (CFO). Mr. Roach is a seasoned technology executive with experience leading finance organizations for high-growth technology organizations, most recently serving as SVP and CFO for McKesson Technology. As CFO for ICD, Mr. Roach will be responsible for the firm's financial and accounting operations and human resources, including financial planning, budgeting, and risk and human capital management. As a member of the executive team, reporting to the CEO, he will be instrumental in driving and executing the company's growth strategies as ICD continues to expand its market leadership position." ICD CEO Tory Hazard tells us, "We are thrilled to have Dave join the executive team. He comes to ICD with a wealth of experience in driving financial strategy, accounting and negotiating complex licensing agreements in the technology space. With Dave at the helm of our finance organization, we are well-positioned to continue our positive momentum and achieve our growth objectives." The release adds, "Mr. Roach comes to ICD with over 25 years of finance experience and has been passionate about driving growth, most recently as SVP and Chief Financial Officer for McKesson Technology, where he had responsibilities for Finance, Asset Management and integration for McKesson's internal IT function. During his tenure at McKesson, a Fortune 10 healthcare distribution and services company, Mr. Roach held a variety of other finance leadership roles in Corporate and its US Pharma Distribution business unit. Prior to McKesson, Mr. Roach worked in finance at AtomShockwave.com, Macromedia, and Sybase, and as an economic consultant at Ernst & Young." Roach comments, "ICD's growth and continued potential is what drew me to the company. They are a leader in the space and have a tremendous reputation. I am excited to be a part of their upward trajectory moving forward."

The ICI's latest weekly "Money Market Fund Assets" shows that assets rose for the fourth week in a row, reclaiming the $3.1 trillion level. They remain just $12 billion below their 2019 high of $3.113 trillion, set on March 6, which was their highest level since March 2010. They write, "Total money market fund assets increased by $16.60 billion to $3.10 trillion for the week ended Wednesday, May 15, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $13.6 billion and prime funds increased by $2.1 billion. Tax-exempt money market funds increased by $965 million." ICI's weekly series shows Institutional MMFs rising $13.1 billion and Retail MMFs rising $3.7 billion. Total Government MMF assets, including Treasury funds, stood at $2.307 trillion (74.4% of all money funds), while Total Prime MMFs rose to $653.0 billion (21.1%). Tax Exempt MMFs totaled $140.4 billion, or 4.5%. ICI states, "Assets of retail money market funds increased by $3.46 billion to $1.21 trillion. Among retail funds, government money market fund assets increased by $1.66 billion to $691.14 billion, prime money market fund assets increased by $1.06 billion to $389.38 billion, and tax-exempt fund assets increased by $742 million to $129.35 billion." Retail assets account for over a third of total assets, or 39.0%, and Government Retail assets make up 57.1% of all Retail MMFs. The release adds, "Assets of institutional money market funds increased by $13.14 billion to $1.89 trillion. Among institutional funds, government money market fund assets increased by $11.89 billion to $1.62 trillion, prime money market fund assets increased by $1.03 billion to $263.63 billion, and tax-exempt fund assets increased by $223 million to $11.06 billion." Institutional assets accounted for 61.0% of all MMF assets, with Government Institutional assets making up 85.5% of all Institutional MMF totals.

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Wednesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of May 10) includes Holdings information from 67 money funds (down from 90 on 4/26), representing $1.299 trillion (down from $1.720 trillion) of the $3.305 (39.3%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our May 10 News, "May Money Fund Portfolio Holdings: Repo, Agencies, CP Up; T-Bills Drop.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $497.4 billion (down from $629.0 billion 2 weeks ago), or 38.3%, Treasury debt totaling $371.7 billion (down from $518.3 billion) or 28.6%, and Government Agency securities totaling $248.9 billion (down from $312.9 billion), or 19.2%. Commercial Paper (CP) totaled $64.4 billion (down from $89.9 billion), or 5.0%, and Certificates of Deposit (CDs) totaled $66.4 billion (down from $83.3 billion), or 5.1%. A total of $20.4 billion or 1.6%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $30.2 billion, or 2.3%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $371.7 billion (28.6% of total holdings), Federal Home Loan Bank with $178.4B (13.7%), Fixed Income Clearing Co with $63.2B (4.9%), BNP Paribas with $59.1 billion (4.6%), Federal Farm Credit Bank with $46.3B (3.6%), JP Morgan with $26.9B (2.1%), Credit Agricole with $26.3B (2.0%), Wells Fargo with $25.4B (2.0%), Natixis with $23.9B (1.8%), and Mitsubishi UFJ Financial Group Inc with $23.2B (1.8%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($133.4B), Fidelity Inv MM: Govt Port ($108.7B), Goldman Sachs FS Govt ($98.6B), Wells Fargo Govt MMkt ($76.9B), Fidelity Inv MM: MMkt Port ($57.4B), Morgan Stanley Inst Liq Govt ($55.6B), Goldman Sachs FS Trs Instruments ($55.6B), Dreyfus Govt Cash Mgmt ($55.1B), JP Morgan 100% US Trs MMkt ($53.2B), and JP Morgan Prime MM ($50.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

The Investment Company Institute released its latest "Money Market Fund Holdings" summary on Tuesday (with data as of April 30, 2019). This monthly update reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See our May 10 News, "May Money Fund Portfolio Holdings: Repo, Agencies, CP Up; T-​Bills Drop.") The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in April, prime money market funds held 27.7 percent of their portfolios in daily liquid assets and 42.1 percent in weekly liquid assets, while government money market funds held 58.7 percent of their portfolios in daily liquid assets and 76.9 percent in weekly liquid assets." Prime DLA decreased from 29.1% in March, and Prime WLA also declined from 42.6% the previous month. Govt MMFs' DLA decreased from 60.5% in March and Govt WLA decreased from 78.4% from the previous month. ICI explains, "At the end of April, prime funds had a weighted average maturity (WAM) of 36 days and a weighted average life (WAL) of 68 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 29 days and a WAL of 92 days." Prime WAMs decreased by 2 days from the previous month, and WALs decreased by 1 day. Govt WAMs decreased by 2 days from March levels and Govt WALs also decreased by one day the last month. Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas declined from $293.05 billion in March to $291.58 billion in April. Government money market funds' holdings attributable to the Americas declined from $1,928.80 billion in March to $1,816.82 billion in April." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $293.1 billion, or 46.6%; Asia and Pacific at $119.5 billion, or 19.0%; Europe at $211.3 billion, or 33.6%; and, Other (including Supranational) at $4.6 billion, or 0.7%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.929 trillion, or 82.3%; Asia and Pacific at $109.1 billion, or 4.7%; Europe at $301.4 billion, or 12.9%, and Other (Including Supranational) at $4.9 billion, or 0.2%.

The SEC released its latest quarterly "Private Funds Statistics" report recently, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows that overall Liquidity fund assets inched higher in the latest reported quarter to $617 billion. A previous press release, entitled, "SEC Staff Supplements Quarterly Private Funds Statistics" tells us, "The U.S. Securities and Exchange Commission staff ... published a suite of new data and analyses of private fund statistics and trends. The Private Funds Statistics ... offers investors and other market participants valuable insights by aggregating data reported by private fund advisers on Form ADV and Form PF. New analyses include ... characteristics of private liquidity funds." The SEC's "Introduction" explains, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Third Calendar Quarter 2016 through Third Calendar Quarter 2018 as reported by Form PF filers." (Note: Crane Data believes many of the liquidity funds are securities lending reinvestment pools and other short-term investment funds; these are not the new breed of "3c-7" private liquidity funds being marketed by Federated, JPMorgan and a few others.) The tables in the SEC's "Private Funds Statistics: Third Calendar Quarter 2018," the most recent data available, now show 113 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash), same as the last quarter and down 2 from a year ago. (There are 68 Liquidity Funds and 45 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 38 Liquidity Fund advisers and 22 Section 3 Liquidity Fund advisers, or 60 advisers in total, the same as last quarter (down 1 from a year ago). The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $617 billion, up $3 billion from Q2'18 and up $59 billion from a year ago (Q3'17). Of this total, $311 billion is in normal Liquidity Funds while $306 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $623 billion, up $5 billion from Q2'18 and up $62 billion from a year ago (Q3'17). Of this total, $314 billion is in normal Liquidity Funds while $309 billion is in Section 3 (large manager) Liquidity Funds. A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $105 billion is held by Private Funds (34.4%), $57 billion is held by Other (18.7%), $23 billion is held by SEC-Registered Investment Companies (7.6%), $17 billion is held by Banking/Thrift Inst. (5.4%), $12 billion is held by Insurance Companies (3.8%), $4 billion is held by Pension Plans (1.2%), and $4 billion is held by Non-U.S. Individuals (1.1%). The tables also show that 78.8% of Section 3 Liquidity Funds have a liquidation period of one day, $291 billion of these funds may suspend redemptions, and $255 billion of these funds may have gates (out of a total of $306 billion). The Portfolio Characteristics show that these funds are very close to money market funds. WAMs average a short 33.4 days (38.8% days when weighted by assets), WALs are a short 60.0 days (66.6 days when asset-weighted), and 7-Day Gross Yields average 1.90% (2.03% asset-weighted). Daily Liquid Assets average about 47.5% (48.9% asset-weighted) while Weekly Liquid Assets average about 62.8% (57.8% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; more than half of them (46.7%) are fully compliant with Rule 2a-7. (See also our March 15, 2017 News, "CAG's Pan on Pros and Cons of Private Liquidity Funds, SEC Paper, Stats.")

J.P. Morgan Securities' latest "April taxable MMF holdings update" comments, "Dealer repo with MMFs rose $89bn month over month to $1,107bn, as Yankee banks saw their activity rebound post quarter end. The biggest increases came from French (+$50bn), US (+$24bn), Japanese (+$21bn), and Swiss (+$14bn), partially offset by a $23bn decline from Canadian banks due to their quarter-end technicals.... FICC sponsored repo rose $5bn to $112bn, and FICC remained the second largest individual counterparty." The "Short-Term Fixed Income Update" also says, "Away from repo, government funds substantially decreased their allocations to Treasuries: T-bill holdings fell $70bn, and fixed- and floating-rate coupon allocations dropped $70bn and $29bn, respectively. Government funds added $16bn of Agencies (mostly discos).... Government MMFs remain large buyers of SOFR floaters, increasing their holdings by $9bn to $60bn.... Of the more than $100bn of SOFR floaters that have been issued to date, about 81% has come from GSEs, so it's not surprising that government funds have played a large role, taking down over half of all SOFR issuances so far." Finally, JPM adds, "Prime funds saw increased holdings of essentially all asset classes (this is in part due to the addition of a $108bn fund to the data set this month).... Prime holdings of Agencies rose $29bn, nonfinancial corporate exposure jumped $20bn, and Treasury holdings were up $12bn. Bank credit exposure rose $38bn, mostly in the form of more CP/CDs with European, Canadian and Japanese banks; at the individual issuer level changes were largely idiosyncratic."

The ICI's latest weekly "Money Market Fund Assets" shows that assets rose for the third week in a row, after falling 4 weeks ago on tax payments. They write, "Total money market fund assets increased by $12.27 billion to $3.08 trillion for the week ended Wednesday, May 8, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $1.93 billion and prime funds increased by $5.40 billion. Tax-exempt money market funds increased by $4.93 billion." ICI's weekly series shows Institutional MMFs rising $7.5 billion while Retail MMFs rose by $4.7 billion. Total Government MMF assets, including Treasury funds, stood at $2.294 trillion (74.4% of all money funds), while Total Prime MMFs rose to $650.9 billion (21.1%). Tax Exempt MMFs totaled $139.5 billion, or 4.5%. ICI states, "Assets of retail money market funds increased by $4.73 billion to $1.21 trillion. Among retail funds, government money market fund assets decreased by $197 million to $689.48 billion, prime money market fund assets increased by $1.23 billion to $388.32 billion, and tax-exempt fund assets increased by $3.70 billion to $128.61 billion." Retail assets account for over a third of total assets, or 39.1%, and Government Retail assets make up 57.2% of all Retail MMFs. The release adds, "Assets of institutional money market funds increased by $7.53 billion to $1.88 trillion. Among institutional funds, government money market fund assets increased by $2.13 billion to $1.60 trillion, prime money market fund assets increased by $4.17 billion to $262.60 billion, and tax-exempt fund assets increased by $1.23 billion to $10.84 billion." Institutional assets accounted for 60.9% of all MMF assets, with Government Institutional assets making up 85.4% of all Institutional MMF totals.

A brief in "Investment Advisor" magazine, entitled "Warren Buffet's 10 Nuggets of Investing Wisdom: 2019 includes the comment, "At year-end, Berkshire held $112 billion in Treasury bills and other cash equivalents. The company has pledged to keep an 'untouchable' $20 billion buffer. 'Berkshire will forever remain a financial fortress,' Buffett said. Though he may have 'expensive mistakes' and miss opportunities, he 'will never risk getting caught short of cash.'"

A press release entitled, "Federated Investors, Inc. to Acquire Certain Investment-Management-Related Assets from The PNC Financial Services Group," tells us, "Federated Investors, Inc. (FII) and The PNC Financial Services Group (PNC) today announced that they have reached a definitive agreement for Federated to acquire certain components of PNC Capital Advisors LLC's (PCA) investment-management business. The proposed transaction includes the reorganization of PNC's family of liquidity, equity and fixed-income mutual funds into corresponding Federated mutual funds, the acquisition of a portion of PNC's separate account and separately managed account business, and the transition of a six-person international equity management team from PNC to Federated.... Through the agreement, approximately $9 billion in assets from three PNC government and treasury money market funds is expected to be transitioned through mutual fund reorganizations.... The existing Federated mutual funds have comparable investment strategies." It continues, "Post-closing, PCA will manage approximately $21 billion of custom liquidity and fixed-income solutions to address the needs of PNC's corporate and institutional clients, including corporations, healthcare organizations, insurance companies, unions, higher education, government entities and endowment, and foundations. The employees of PNC's liquidity and taxable fixed-income teams will remain with PCA, focused on managing separate accounts." Federated President & CEO J. Christopher Donahue comments, "We are pleased to be working with PNC on this transaction. Federated is committed to helping PNC’s clients reach their financial goals by providing solid product performance, a range of compelling investment solutions and superior client service." The release adds, "The transaction is expected to close in the fourth quarter of 2019. Federated will pay PNC an estimated total purchase price of $52 million when the transaction is completed. The transaction has been approved by the Board of Directors of Federated Investors, Inc. The Federated Mutual Fund Board of Trustees and the PNC Funds Board of Trustees will be asked to consider the mutual fund reorganizations in the coming months." The Liquidity Product transitions include: PNC Government Money Market Fund ($13.0B) will merge into Federated Government Obligations Fund, PNC Treasury Money Market Fund ($1.8B) will merge into Federated U.S. Treasury Cash Reserves Fund, and PNC Treasury Plus Money Market Fund ($424M) will merge into Federated Treasury Obligations Fund.

BankRate writes "9 low-risk ways to earn higher interest". They tell us, "Park your savings into the average account, and you’ll miss out on money. The national average savings account pays a paltry 0.1 percent annual percent yield, according to Bankrate data. If you put $10,000 into savings, you would earn $10 in year one. Luckily, you have plenty of other options that pay 20 times that rate, if not more." The piece explains, "Here are nine ways to earn higher interest without taking on risk: 1. Get over your fear of online banks. 2.Consider a rewards checking account. 3. Take advantage of bank bonuses. 4. Check out high-interest, low-penalty CDs. 5. Switch to a high-interest online savings account. 6. Create a CD ladder. 7. Consider a credit union. 8. Try a fintech app. 9. Don't accept a low rate." BankRate writes, "If you prefer to have your cash more liquid than parking it in a CD, consider switching to a high-yield savings account. While the average savings account APY is low, there are ever-more options that pay 2 percent APY or higher. You won’t get rich, but you will earn more money than if you keep it at an average savings account. For example, Marcus by Goldman Sachs pays 2.25 percent APY on its online savings account, and there is no minimum deposit. It's also getting easier to open bank accounts. At some banks and fintech companies, you can open new accounts within minutes."

Last week, Federated Investors filed its latest "Form 10-Q Quarterly Report," which says about the "Current Regulatory Environment," "While the pace of new regulation continues at a moderate pace in 2019, and calls for deregulation continue, the SEC (among other regulatory authorities, self-regulatory organizations or exchanges) continues to propose and finalize new rules and regulations.... Deregulation also is a focus of certain legislative efforts. `The House Financial Services Committee advanced a bill seeking to reverse certain aspects of money market fund reform and a hearing on that bill was held in the Senate in June 2018, and efforts continue in Congress in 2019 to get this legislation passed and signed into law. The proposed law would permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements for, institutional and municipal (or tax-exempt) money market funds. These requirements were imposed under the SEC's structural, operational and other money market fund reforms adopted through amendments to Rule 2a-7, and certain other regulations, on July 23, 2014 (2014 Money Fund Rules) and related guidance (collectively, the 2014 Money Fund Rules and Guidance). Compliance with the 2014 Money Fund Rules and Guidance became effective on October 14, 2016." The filing explains, "The current regulatory environment has impacted, and will continue to impact, Federated's business, results of operations, financial condition and/or cash flows. For example, changes required under the 2014 Money Fund Rules and Guidance resulted in a shift in asset mix from institutional prime and municipal (or tax-exempt) money market funds to stable NAV government money market funds across the investment management industry and at Federated, which impacted its AUM, revenues and operating income. Management continues to believe that, as interest rates remain at higher levels or continue to rise, money market funds will benefit generally from increased yields, particularly as compared to deposit account alternatives, and that, as spreads widen, investors who exited prime money market funds will likely continue to reconsider their investment options over time, including Federated's prime private money market fund and prime collective fund. While 2018 and the first quarter of 2019 did see a shift in asset mix back toward institutional prime and municipal (tax-exempt) money market funds, there is no guarantee such shift will continue and return the asset mix between institutional prime, municipal (or tax-exempt) and government money market funds to pre-October 2016 levels; therefore, the degree of improvement to Federated's prime money market business can vary and is uncertain." It adds, "Investment management industry participants, including Federated, continued, and will continue, to monitor, plan for and implement certain changes in response to new proposed or adopted rules, such as the following (which Federated previously described in greater detail in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 or in prior public filings): On April 5, 2017, European Parliament passed EU money market fund reforms (Money Market Fund Regulation or MMFR). The MMFR provides for the following types of money market funds in the EU: (1) Government constant NAV (CNAV) funds; (2) Low volatility NAV (LVNAV) funds; (3) Short-term variable NAV (VNAV) funds; and (4) standard VNAV funds. The reforms became effective (i.e., must be complied with) in regards to new funds on July 21, 2018 and became effective in regards to certain existing funds (including the Federated Funds in Ireland and the UK) on January 21, 2019. Federated utilized both internal and external resources to complete the conversion of two non-U.S. money market funds to LVNAV funds and two government non-U.S. money market funds to public debt CNAV funds, and otherwise began to comply with the MMFR, on January 11, 2019. Federated also continues to engage with trade associations and appropriate regulators in connection with the MMFR because the European Securities Market Authority and the European Commission continue work on implementing the MMFR and government CNAV and LVNAV fund reforms will be subject to a future review of their adequacy from a prudential and economic perspective by the European Commission in 2022." (For more, see our Feb. 25 News, "Federated Annual 10-K Sheds Light on Latest Money Fund Risks, Issues.")

Morgan Stanley Investment Management posted a brief entitled, "Liquidity Darwinism." It tells us, "Darwin's Theory of Evolution is often applied to today's ever-changing business world: adapt and evolve. We believe this is particularly true for the modern treasury professional. In a liquidity investing landscape characterised by persistently low and negative rates, changing market forces, new regulations and product reform, the ability to adapt and evolve investment strategies has become ever more important. Companies that have been willing and able to change their investment policy in the face of today's shifting environment can benefit from improved yield potential, diversification and a greater set of investment opportunities." It continues, "Cash segmentation is a widely used strategy that many treasury teams have already successfully adopted over the past decade to help enhance their yields and gain better control and cost over their liquidity. The ability to reasonably forecast cash flows is critical for success, allowing the segmentation of liquidity into distinct pools, each with its own purpose and investment opportunity set. Investors have recognized that the cost of holding excess liquidity is extremely high and through liquidity optimization, they have reduced their opportunity costs. In order to make a segmentation process most effective, it is essential to ensure any investment policy is flexible enough to better align each pool's liquidity and return objectives.... Many multinational corporations have deliberately implemented strategies that better align their cash investments with their expected cash flow needs, recognising that making their investment policies more flexible would allow them to capitalize on different market opportunities. The greater the flexibility of the investment policy, the easier it is for investors to take advantage of market dislocations and to pivot to strategies which may still emphasize principal protection or liquidity, but could offer better risk and/or return potential. In many cases, these companies have also added alternative investment strategies, such as money market funds, repurchase agreements, direct investments and separately managed accounts to seek to enhance their returns." They add, "We believe that adapting and evolving is critical as new technologies and market dynamics change the treasury investing landscape. Today's treasurer usually benefits from improved visibility around cashflows, efficiency and control. We believe an investment policy that is flexible and adaptable will be better positioned for today's investment environment, as well as tomorrows. William Pollard, a 20th century physicist, may have summarized this best: 'Those who initiate change will have a better opportunity to manage the change that is inevitable.'"

The Federal Reserve's latest "FOMC statement" tells us, "Information received since the Federal Open Market Committee met in March indicates that the labor market remains strong and that economic activity rose at a solid rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Growth of household spending and business fixed investment slowed in the first quarter. On a 12-month basis, overall inflation and inflation for items other than food and energy have declined and are running below 2 percent. On balance, market-based measures of inflation compensation have remained low in recent months, and survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments." During a press conference, Chairman Powell added, "Finally, we made a small technical adjustment in one of our tools for implementing monetary policy--the interest rate on excess reserves, or IOER rate. The change does not reflect any shift in the intended stance of monetary policy. We use the IOER rate to help keep the federal funds rate in our target range. As balance sheet normalization continues, we have expected that the effective federal funds rate would shift up over time relative to the IOER rate. Last year, we twice lowered the IOER rate by 5 basis points relative to the top of the target range after the federal funds rate moved toward the top of the range. These actions helped keep the effective federal funds rate well within the target range. Today we made one more such change. The target range for the federal funds rate is our main indicator of the stance of policy, and it remains unchanged."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics and summary Tuesday. Our weekly holdings track a shifting subset of our monthly Portfolio Holdings collection, and the latest cut (with data as of April 26) includes Holdings information from 90 money funds (up from 62 on 4/20), representing $1.720 trillion (up from $1.361 trillion) of the $3.187 (54.0%) in total money fund assets tracked by Crane Data. (For our latest monthly Money Fund Portfolio Holdings numbers, see our April 10 News, "April Money Fund Portfolio Holdings: Treasuries Jump, Repo Plunges.") Our latest Weekly MFPH Composition summary shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $629.0 billion (up from $486.5 billion 1 week ago), or 36.6%, Treasury debt totaling $518.3 billion (down from $439.5 billion) or 30.1%, and Government Agency securities totaling $312.9 billion (up from $243.9 billion), or 18.2%. Commercial Paper (CP) totaled $89.9 billion (up from $68.4billion), or 5.2%, and Certificates of Deposit (CDs) totaled $83.3 billion (up from $71.9 billion), or 4.8%. A total of $45.4 billion or 2.6%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $41.6 billion, or 2.4%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $518.3 billion (30.1% of total holdings), Federal Home Loan Bank with $228.9B (13.3%), BNP Paribas with $84.4 billion (4.9%), Federal Farm Credit Bank with $57.0B (3.3%), Fixed Income Clearing Co with $53.0B (3.1%), RBC with $52.8B (3.1%), JP Morgan with $44.1B (2.6%), Barclays PLC with $36.1B (2.1%), Wells Fargo with $35.5B (2.1%) and Natixis with $31.4B (1.8%). The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($132.7B), Fidelity Inv MM: Govt Port ($108.4B), Goldman Sachs FS Govt ($96.7), BlackRock Lq FedFund ($88.7B), Federated Govt Oblg ($74.8B), Wells Fargo Govt MMkt ($73.9B), BlackRock Lq T-Fund ($65.9B), Fidelity Inv MM: MMkt Port ($56.5B), Dreyfus Govt Cash Mgmt ($56.4B) and Goldman Sachs FS Trs Instruments ($56.3B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)