Daily Links Archives: May, 2022

A recent blog post entitled, "Scaling to New Heights: Launching our Fixed Income Repo Platform," explains, "In 2019, Clear Street launched a principal Securities Lending business to facilitate borrowing and lending activity for its prime broker clients. As my colleague Madhu Subbu recently explained, Securities Finance is an important piece of the global market, consisting of trillions of dollars in lendable assets and facilitating order and stability within our financial system. In a short period, that business has grown significantly.... Today we're pleased to announce the continued expansion of Clear Street's Securities Finance offering with the official launch of Fixed Income Repo." Author Joseph DiMartino explains, "Over the next six months, we plan to scale our business and grow our client-base among institutional managers. We have ambitious goals for the business, but I am confident we will achieve them thanks to the expertise of our dedicated team. I've been in the repo business for more than 30 years, and I can confidently say that our team is comprised of some of the most seasoned professionals in our industry, including: Victor Masotti — Director of Repo Trading. Victor has been instrumental in the build out of Clear Street's Fixed Income Repo platform. He has nearly a decade of experience, most recently serving as Vice President of U.S. STIR Trading at TD Securities. John Laudadio — Director of Securities Finance Transactions. John joined after more than 15 years in senior roles in securities finance at Mitsubishi UFJ Securities and HSBC Global. We also are pleased to welcome an additional team member to the mix, Aldo Mannino as Director of Repo Sales & Trading. Aldo joins Clear Street after more than 25 years in financial services, working at UBS and Mizuho where he developed and operated a multitude of sales & trading strategies." He adds, "It's a great time to be launching this business as there is vast potential in today's market. Entering the repo market today presents a unique opportunity to meet rapidly growing customer demand. We are seeing strong interest in repo from institutional clients, ranging from municipal pension funds to corporates and everything in between. Our team at Clear Street is ready to partner with these managers to provide long-term liquidity solutions."

A press release entitled, "Schwab Reports Monthly Activity Highlights," tells us, "The Charles Schwab Corporation released its Monthly Activity Report today. Company highlights for the month of April 2022 include: Core net new assets brought to the company by new and existing clients totaled negative $9.2 billion. Net new assets excluding mutual fund clearing totaled negative $6.5 billion. These flows reflect client cash disbursements during tax season. Total client assets were $7.28 trillion as of month-end April, down 1% from April 2021 and down 7% compared to March 2022. Average interest-earning assets were $636.7 billion in April, up 21% from April 2021 and down 1% compared to March 2022." CFO Peter Crawford comments, "Client cash disbursements during this year's tax season were the highest we've ever seen at Schwab. These outflows include the impact of client portfolio actions taken during 2021, a year marked by strong equity market performance and robust trading activity. Such seasonal activity is distinct from flows within client accounts rebalancing their cash positions between daily liquidity and investments such as money market funds. This rebalancing, or sorting, activity tends to occur as an extended period of low interest rates shifts into a rising rate environment and clients refresh their allocations." He adds, "While the Federal Reserve has taken initial steps to move interest rates higher thus far in 2022, short rates are just now approaching the point where we'd expect to see clients start to rebalance their cash positions. Assuming the Fed's tightening cycle remains consistent with current forecasts, we believe we could see rebalancing activity begin to surface before the end of the second quarter. Such actions may lead to a slight decline in balance sheet assets from current levels over the next quarter or two (assuming clients don't meaningfully shift their investments from equities to cash). As we help clients navigate this environment, we remain confident that the successful execution of our 'Through Clients' Eyes' strategy, coupled with our all-weather financial model, will support strong long-term growth - in our client base, and in value for our stockholders." Note: Crane Data's Peter Crane will be hosting a panel on money market fund and brokerage bank deposit issues in Phoenix Monday at SIFMA's AMA Roundtable event. We look forward to seeing our brokerage friends in Phoenix!

ICI's latest weekly "Money Market Fund Assets" report shows assets inched lower in the latest week to the $4.5 trillion level. Year-to-date, MMFs are down by $204 billion, or -4.3%, with Institutional MMFs down $143 billion, or -4.4% and Retail MMFs down $61 billion, or -4.2%. Over the past 52 weeks, money fund assets are down $15 billion, or -0.3%, with Retail MMFs falling by $43 billion (-2.9%) and Inst MMFs rising by $28 billion (0.9%). (Month-to-date in May, through 5/11, MMF assets have decreased by $29.8 billion to $4.943 trillion according to Crane's MFI Daily, which tracks a broader universe of funds. In April, MMFs fell by $74.3 billion to $4.974 trillion, according to our MFI XLS monthly.) ICI's weekly release says, "Total money market fund assets decreased by $11.07 billion to $4.50 trillion for the week ended Wednesday, May 11, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $7.62 billion and prime funds decreased by $4.23 billion. Tax-exempt money market funds increased by $778 million." ICI's stats show Institutional MMFs falling $16.7 billion and Retail MMFs rising $5.7 billion in the latest week. Total Government MMF assets, including Treasury funds, were $3.997 trillion (88.8% of all money funds), while Total Prime MMFs were $408.5 billion (9.1%). Tax Exempt MMFs totaled $95.2 billion (2.1%). ICI explains, "Assets of retail money market funds increased by $5.66 billion to $1.41 trillion. Among retail funds, government money market fund assets increased by $2.76 billion to $1.13 trillion, prime money market fund assets increased by $1.82 billion to $194.69 billion, and tax-exempt fund assets increased by $1.09 billion to $86.26 billion." Retail assets account for just under a third of total assets, or 31.3%, and Government Retail assets make up 80.0% of all Retail MMFs. They add, "Assets of institutional money market funds decreased by $16.74 billion to $3.09 trillion. Among institutional funds, government money market fund assets decreased by $10.38 billion to $2.87 trillion, prime money market fund assets decreased by $6.05 billion to $213.79 billion, and tax-exempt fund assets decreased by $307 million to $8.96 billion." Institutional assets accounted for 68.7% of all MMF assets, with Government Institutional assets making up 92.8% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're approximately $400 billion lower than Crane's asset series.)

Allspring Money Market Funds published its latest "Overview, Strategy, and Outlook" last week. The section on the "U.S. government sector," written by Senior Portfolio Manager Michael Bird (who will speak on "Government Money Fund & Repo Issues" at our upcoming Money Fund Symposium in Minneapolis, June 20-22), tells us, "In the markets for government securities, little has changed in the past month. The Fed continues to look poised to remove accommodation rapidly, with an interest rate hike of 50 bps and a quantitative tightening (QT) announcement both expected at its early May meeting. The Fed is reacting to economic data that has uniformly pointed to a strong labor market and rapidly rising prices and is expected by the government markets to continue raising rates expeditiously throughout the year." It continues, "Also among the little changed from last month is the stark imbalance between supply and demand in the money markets. The Fed's reverse repurchase program (RRP), a home for wayward cash, took in an average of $1.769 trillion with no other investment options every day in April. In addition, the Fed's Secured Overnight Financing Rate (SOFR), a broad measure of overnight repurchase agreement (repo) rates, set below the RRP rate of 0.30%, the Fed's intended repo floor, routinely in April, reflecting repo activity by investors not eligible to participate in the RRP. Treasury bills (T-bills) also trade at yields that are very low compared with the Fed's expected rate path. For example, the T-bill maturing in one month yields about 0.35%, in comparison to the RRP, which will likely yield 0.80% for nearly the entire month." Allspring's update says, "The cause of today's monetary imbalance was the Fed's money-printing quantitative easing during the pandemic, and QT will eventually be the solution, but it will take a while. The Fed is expected to announce that it will begin to allow its balance sheet to shrink in the second quarter of 2022, gradually drawing down excess liquidity by letting its securities holdings mature without being reinvested. After perhaps several years, the excess liquidity will have evaporated, the RRP will lie dormant, and market activity will set rates. However, for the very near term, and until that day comes, we can continue to see government securities trade at richer levels than the Fed's glide path would indicate."

Among the 64 "Comments on Money Market Fund Reform" submitted to the SEC, just one comes from a member of Congress. Pennsylvania Republican Senator Pat Toomey, head of the Senate Committee on Banking, Housing, and Urban Affairs, writes to SEC Chair Gary Gensler in his post, "Money market mutual funds ('MMFs') are a valuable investment option for retail investors, an essential cash management tool for institutional investors, and a vital source of funding for governments and corporations. As you stated during your confirmation process, regulations should 'ensure access to investors' for MMFs 'while also ensuring stability in our financial system.' I support the proposed removal of the arbitrary threshold linking 30% weekly liquid assets ('WLA') to the imposition of fees and gates ('fees and gates linkage'). However, the proposed requirements for swing pricing, enhanced liquidity risk, and adoption of policies for negative interest rates are not justified. Instead, the Securities and Exchange Commission ('SEC') should allow all types of MMFs to adopt measures the funds think best ensure their resiliency, including a stable Net Asset Value ('NAV').... The SEC should repeal the 30% WLA fees and gates linkage because the COVID-19-related market disruptions in March 2020 showed that this requirement is a flaw in the MMF regulatory regime. The March 2020 events do not justify any further costly and prescriptive MMF regulations. Any insistence otherwise misinterprets the March 2020 events so severely that issuing a final rule by the SEC under this pretense may be arbitrary and capricious. MMFs were not the principal cause of pressure on the short-term funding markets in March 2020. These market disruptions primarily came from the unprecedented COVID-19 pandemic and government-imposed business shutdown orders." He explains, "Rather than narrowly prescribing how MMFs must operate to remain resilient during market disruptions, the SEC should consider broadly authorizing MMFs to determine how to ensure their funds' resiliency. An MMF could appropriately tailor measures based on fund-specific factors, such as its investor base, asset mix, and how it is distributed. As Commissioner Hester Peirce noted, this regulatory approach 'would allow for market choice, enable us to see what works, and make the financial system more resilient by diminishing the likelihood that problems at one money market fund would spill over to other funds, which in turn might reduce the urge of those in government to rush in with industry-wide rescues.' In other words, it would reduce systemic regulatory risk." Toomey tells us, "This flexible approach must allow all funds to adopt a stable NAV. The U.S. economy faces sustained high inflation and will see the money supply decrease to combat this inflation. Given these conditions, the need for a product that allows investors to obtain a higher return on investment while facilitating the provision of much-needed capital to municipalities and corporations is as vital as ever. Allowing MMFs to again adopt a stable NAV would restore an essential feature of their use as a cash management tool and level the playing field for MMFs investing in private companies and municipalities." He adds, "Furthermore, the SEC and other financial regulators should consider to what extent the market disruptions in March 2020 stemmed from factors unrelated to MMF regulations and how to address these factors. As ICI has noted, MMFs 'are just one participant in the short-term funding markets,' and even the elimination of MMFs 'would not make these markets more resilient, and the short-term funding markets will continue to be a source of stress to the financial system.'"

The Wall Street Journal reports "Cryptocurrency TerraUSD Falls Below Fixed Value, Triggering Selloff," which tells us, "One type of cryptocurrency, a so-called stablecoin, is meant to keep its value at $1. But on Monday, the third-biggest stablecoin, TerraUSD, fell as low as 89 cents, causing a flood of investors to sell their holdings. Stablecoins get their name from their being tied to the value of government-issued currencies, such as the dollar. These $1 pegs are usually backed by Treasurys, cash and other dollar debt that is easily sold in times of market stress." The article explains, "More than $18 billion was invested in TerraUSD as of this past weekend, making it the third-largest stablecoin, according to crypto data provider the Block. But unlike traditional stablecoins, TerraUSD is an algorithmic stablecoin. These pseudo dollars aren't necessarily backed by any assets at all, instead relying on financial engineering to maintain their link to the dollar. Such designs have been criticized by market observers as risky because they rely on traders to push the value back to $1 rather than having assets that continuously support the price. If traders aren't willing to buy them, coins can go into a so-called death spiral. TerraUSD has mostly maintained its dollar peg, but it has been broken in bouts of heavy volatility." The Journal writes, "The dislocation of TerraUSD from its peg caused some traders to panic and sell. To reinstate the peg, others began selling ether and buying TerraUSD, weighing on the dollar value of the second-largest cryptocurrency by market value. Some traders also sold bitcoin over the weekend in anticipation that the platform would need to sell its bitcoin reserves to support the peg.... Bitcoin fell 10% Monday to about $31,076 amid a broad selloff in the crypto markets. TerraUSD in Monday evening trading was at about 93 cents, after touching the low of 89 cents earlier, according to CoinMarketCap. Panic selling also hit the related Luna cryptocurrency, which has dropped 30% since Sunday, wiping out $5.6 billion of market value, CoinMarketCap data show. The Luna Foundation Guard, a nonprofit supporting Terra, said it voted to support TerraUSD by lending $750 million of bitcoin to trading firms to protect the stablecoin's peg and lending out an additional 750 million in TerraUSD to buy more bitcoin."

Continuing our excerpts from the latest "Comments on Money Market Fund Reform" to the SEC, we review the posting from Invesco, the 15th largest MMF manager. Invesco's Head of Global Liquidity Laurie Brignac says, "For over forty years, Global Liquidity has been a core business at Invesco with over $159.3 billion in liquidity assets as of February 28, 2022, of which $100.5 billion is held in money market funds governed by Rule 2a-7 of the Investment Company Act of 1940, as amended ('Rule 2a-7'). We believe in a disciplined investment process, high credit quality solutions with a keen focus on liquidity, and distinguished client engagement. These factors have led to consistent performance and a successful history of navigating multiple credit and liquidity events. Invesco has a tremendous commitment to the money market fund industry not only in the US, but across the globe." She explains, "Invesco appreciates the opportunity to provide the Commission with our comments on the proposed changes to Rule 2a-7 (the 'Proposed Rule') detailed in the Release; this letter (the 'Comment Letter') addresses some specific issues raised therein. Invesco recognizes that there are critical adjustments that need to be made to previous money market reform measures to make money market funds more resilient to market disruptions so they may continue to provide safe and liquid investments to retail and institutional investors. Invesco generally supports and is largely aligned with the positions expressed by the Investment Company Institute ('ICI') and the Securities Industry and Financial Markets Association ('SIFMA') in their separate comment letters to the Commission regarding the Proposed Rule. Separately from the Release, we believe the broader regulatory focus should be on issues which would improve market structure and liquidity for all participants in the short-term funding markets thereby providing money market fund investors and managers a more stable environment to manage client assets." Brignac comments, "Invesco believes the principal goals of additional money market fund reforms should be: strengthening the ability of money market funds to utilize portfolio liquidity in order to manage redemptions and mitigating the related potential contagion risk; increasing the transparency of money market fund risks and risk management practices, providing shareholders with more certainty and clarity, which are the best mitigants against potential runs; preserving the benefits that money market funds currently offer to investors to the greatest extent possible; preserving money market funds as a key source of funding for the real economy which includes state and local governments, retirement plans, corporations and other entities such as universities and hospitals; and promoting equitable treatment for all money market fund investors by, among other things, ensuring that any extraordinary liquidity costs by money market funds during periods of market stress are borne by the investors generating them and eliminating information advantages." She adds, "Reforms must be carefully tailored to address the particular risks policymakers seek to mitigate. Proposed solutions should be tailored to specific problems or risks. Attempts to craft solutions intended to address broad and ill-defined problems such as 'systemic risk' are doomed to failure, in part because the nature and definition of systemic risk themselves are far from settled. The issues that the proposed reform alternatives are intended to address, such as the risk of money market fund investor runs, are specific in nature and arise in particular circumstances -- namely, during periods of extreme market stress. Any additional reforms implemented to address these issues should be similarly tailored.... Money market funds did not cause the market instability in 2020, and they were only one of many participants in the short-term funding markets; rather it was the unprecedented 'dash for cash' more broadly and uncertainty about access to cash in institutional prime money market funds due to the existing gating mechanism that influenced investor behavior and exacerbated an already unstable market." Brignac writes, "Invesco believes that some significant modifications to the Proposed Rule are necessary in order for advisers to retain the necessary flexibility to satisfy their fiduciary obligation of managing their client's assets with the objective of portfolio safety and liquidity as paramount under ever-changing market conditions. In summary, our views on the reforms included in the Proposed Rule are as follows: We support the removal of redemption gates for all money market funds. However, as a preferred alternative to swing pricing, liquidity fees could provide an appropriate and effective means to ensure the same regulatory outcomes, i.e. that the extra costs associated with raising liquidity to meet fund redemptions during times of market stress are borne by those responsible for them. The removal of redemption gates would mitigate the 'first-mover' advantage issue and replacing gates with a transparent known liquidity fee construct would provide investors with greater transparency and certainty to better inform their liquidity decisions. The amount of any liquidity fee should be carefully calibrated in relation to a money market fund's actual cost of liquidity. The fees should be restorative, not punitive, and designed to deter early redemptions." Finally, on the "Proposed Swing Pricing Requirement, they write, "Invesco strongly opposes the swing pricing proposal primarily because we believe it would not achieve the stated objectives of the proposed reform and is substantially inferior to the use of liquidity fees: Swing pricing would not deter money market fund investor runs; Swing pricing would significantly reduce the utility of the affected money market funds for the majority of their investors; Swing pricing negatively impacts all investors in the funds, whether they redeem or not, by forcing increased unrealized losses due to the lower NAV; Swing pricing would trigger a wide variety of unintended and undesirable consequences; and, Swing pricing would pose significant operational challenges."

ICI released its latest weekly "Money Market Fund Assets" report yesterday, which shows assets were flat over the past 7 days, after jumping the previous week (and falling sharply for 3 weeks before this). Year-to-date, MMFs are down by $193 billion, or -4.1%, with Institutional MMFs down $126 billion, or -3.9% and Retail MMFs down $67 billion, or -4.5%. Over the past 52 weeks, money fund assets are flat (down $0 billion, or 0.0%), with Retail MMFs falling by $59 billion (-4.0%) and Inst MMFs rising by $58 billion (1.9%). (Month-to-date in May, through 5/4, MMF assets have decreased by $16.0 billion to $4.957 trillion according to Crane's MFI Daily, which tracks a broader universe of funds. In April, MMFs fell by $74.3 billion to $4.974 trillion, according to our MFI XLS monthly.) ICI's weekly release says, "Total money market fund assets increased by $2.21 billion to $4.51 trillion for the week ended Wednesday, May 4, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $589 million and prime funds increased by $157 million. Tax-exempt money market funds increased by $2.64 billion." ICI's stats show Institutional MMFs inching up by $0.8 billion and Retail MMFs increasing $1.5 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.005 trillion (88.8% of all money funds), while Total Prime MMFs were $412.7 billion (9.1%). Tax Exempt MMFs totaled $94.4 billion (2.0%). ICI explains, "Assets of retail money market funds increased by $1.45 billion to $1.40 trillion. Among retail funds, government money market fund assets decreased by $773 million to $1.12 trillion, prime money market fund assets increased by $674 million to $192.87 billion, and tax-exempt fund assets increased by $1.55 billion to $85.18 billion." Retail assets account for just under a third of total assets, or 31.1%, and Government Retail assets make up 80.3% of all Retail MMFs. They add, "Assets of institutional money market funds increased by $756 million to $3.11 trillion. Among institutional funds, government money market fund assets increased by $184 million to $2.88 trillion, prime money market fund assets decreased by $516 million to $219.84 billion, and tax-exempt fund assets increased by $1.09 billion to $9.26 billion." Institutional assets accounted for 68.9% of all MMF assets, with Government Institutional assets making up 92.6% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're approximately $400 billion lower than Crane's asset series.)

A press release entitled, "U.S. LGIPs Unlikely to be Affected by Money Market Fund Reform tells us, "Fitch Ratings believes that regulatory rules for U.S. local government investment pools (LGIPs) that adopt certain money market fund (MMF)-like practices are unlikely to change in response to expected MMF regulatory revisions. Due to LGIPs' generally more stable flows and adequate liquidity during the 2020 market turmoil, and in contrast to some prime MMFs' material outflows and liquidity concerns, governing frameworks for the two fund types are likely to diverge." It states, "On Dec. 15, 2021, the U.S. Securities and Exchange Commission (SEC) announced proposed amendments to Rule 2a-7 of the Investment Company Act of 1940 governing U.S. MMFs. The proposed changes for certain funds include an increase to daily and weekly minimum liquidity requirements, de-linking a fund's ability to impose liquidity fees or redemption gates from liquidity levels, and swing pricing." Fitch writes, "LGIPs are not subject to direct SEC oversight, but instead adhere to state statutes and accounting rules set by the U.S. Governmental Accounting Standard Board (GASB). The SEC's reforms could have an indirect impact on LGIPs through GASB. Prior to 2014, GASB required certain 'MMF-like' LGIPs that elected to report constant net asset values (NAVs) to adhere to MMF rules, directly referencing Rule 2a-7." The release adds, "After MMF reforms were announced by the SEC in 2014, GASB removed the direct reference to Rule 2a-7, although it replicated many of Rule 2a-7's risk-limiting provisions under GASB's statement 79 rules. These requirements address portfolio maturity, credit quality, diversification, and liquidity. However, GASB did not require LGIPs to adhere to some of Rule 2a-7's structural changes such as the switch to floating NAV reporting or the requirement to implement liquidity fees and redemptions gates during times of stress. Swing pricing for LGIPs is also unlikely to be implemented, due to GASB's recognition of the generally more limited operational capabilities of some LGIPs compared to MMFs."

Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of April 29) includes Holdings information from 63 money funds (down from 87 a week ago), which represent $2.439 trillion (down from $2.805 trillion) of the $4.973 trillion (49.0%) in total money fund assets tracked by Crane Data. (Our Weekly MFPH are e-mail only and aren't available on the website. See our April 12 News, "April MF Portfolio Holdings: Fed Repo Jumps; Treasuries, TDs Plunge," for more.) Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Repurchase Agreements (Repo) totaling $1.194 trillion (down from $1.327 trillion a week ago), or 49.0%; Treasuries totaling $970.4 billion (down from $1.115 trillion a week ago), or 39.8%, and Government Agency securities totaling $117.3 billion (down from $151.7 billion), or 4.8%. Commercial Paper (CP) totaled $48.9 billion (down from a week ago at $65.5 billion), or 2.0%. Certificates of Deposit (CDs) totaled $43.7 billion (down from $49.8 billion a week ago), or 1.8%. The Other category accounted for $38.4 billion or 1.6%, while VRDNs accounted for $26.5 billion, or 1.1%. The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $970.4 billion (39.8% of total holdings), the Federal Reserve Bank of New York with $825.7B (33.8%), BNP Paribas with $58.6B (2.4%), Federal Home Loan Bank with $55.9B (2.3%), Federal Farm Credit Bank with $41.4B (1.7%), Fixed Income Clearing Corp with $40.4B (1.7%), RBC with $34.6B (1.4%), Societe Generale with $23.8B (1.0%), Barclays PLC with $22.2B (0.9%) and Mitsubishi UFJ Financial Group Inc with $19.5B (0.8%). The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($261.5B), Goldman Sachs FS Govt ($233.6B), BlackRock Lq FedFund ($167.3B), Morgan Stanley Inst Liq Govt ($136.9B), Allspring Govt MM ($125.5B), Dreyfus Govt Cash Mgmt ($117.8B), Fidelity Inv MM: Govt Port ($116.7B), BlackRock Lq Treas Tr ($114.9B), BlackRock Lq T-Fund ($112.7B) and Goldman Sachs FS Treas Instruments ($109.9B). (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.)

Yet another of the posted "Comments on Money Market Fund Reform" to the SEC comes from U.S. Bancorp Asset Management, manager of the First American Funds, the 14th largest money market fund complex. Chief Investment Officer James Palmer writes, "U.S. Bancorp Asset Management, Inc. (USBAM) appreciates the opportunity to comment on the proposed amendments to money market fund (MMF) rules that were issued by the U.S. Securities and Exchange Commission (SEC) on December 15, 2021. USBAM is a registered investment adviser with more than $192 billion in assets under management as of Dec. 31, 2021. We are primarily focused on short-term fixed income strategies for institutional investors. As the adviser to the First American Funds family of MMFs, established in 1982, both fund shareholders and our business have been impacted by the 2010 and 2014 MMF reforms. We would like to share our viewpoint on the meaningful potential changes our industry and MMF shareholders may face should the SEC's proposed amendments be implemented as proposed." Palmer explains, "USBAM's summarized views on the proposed amendments are below: The SEC should delink redemption gates and liquidity fees from weekly liquid asset percentages which will effectively address first mover advantage. The SEC should impose increased daily and weekly liquidity metrics that will allow MMFs to meet redemption requests throughout various market cycles; although we feel a smaller increase in weekly liquid assets – to 40% rather than 50% – will accomplish the same goal. The SEC should not implement swing pricing as proposed because it will reduce investor interest in institutional prime and institutional tax free MMFs and increase investor confusion. The SEC should not implement the proposed negative rate amendments prohibiting reverse distribution mechanisms and requiring stable net asset value (NAV) funds to float because this will limit the optionality currently afforded each MMF's board to manage future negative rate environments; funding market disruption would potentially occur as stable NAV government fund investors engage in large-scale withdrawals upon the threat of negative rate policies; and numerous intermediaries may choose not to undertake the required complex systems conversions reducing the availability of government MMF offerings to investors." The letter tells us, "MMFs were not the cause of the short-term market stress in March 2020, an idea supported by the research published by the Investment Company Institute in November of that year. The First American Fund complex – including First American Institutional Prime Obligations Fund – experienced inflows during the period. It is our view investors see MMFs as a less volatile investment during times of market stress and preserving that benefit remains a paramount consideration for these investors." It comments, "[T]he lack of certainty over the application and scale of swing pricing, funding delays for same-day settlement, and NAV adjustments add unnecessary complexity to institutional prime and institutional tax-free MMFs. Additionally, the concept would likely prove confusing for shareholders. Rather than providing the perceived benefit of reducing or eliminating first-mover advantage, USBAM believes that there would be a significant reduction or elimination in demand for funds subject to swing pricing. Ultimately, fewer institutional prime MMFs would also have a negative effect on demand and functioning in the short-term markets, thereby increasing volatility for those few prime MMFs choosing to remain and the short-term market at large. It is USBAM's view swing pricing does not achieve the goals of increased transparency nor resilience." US Bancorp A.M. says, "MMF sponsors are uniquely positioned to understand the needs of short-term issuers, MMF shareholders, and liquidity markets. USBAM believes investors want to be able to rely on the principal preservation and NAV stability of their MMFs. We are concerned that the proposals intended to address a negative rate environment – requiring intermediaries to attest they can support a floating NAV in stable NAV MMFs and the prohibition of RDM – have potential to meaningfully disrupt the financial markets. Post-2014 reforms, stable NAV MMFs have gathered scale primarily because they offer a stable NAV along with daily liquidity. We believe this change would push MMF investors into other regulated and unregulated cash vehicles that would have a hard time accommodating the nearly $5 trillion in assets that could flow out of these stable investments." Finally, they add, "USBAM's other major concern is the swing pricing proposal. If adopted, it will likely further shrink the size of the institutional prime and institutional tax-exempt MMF sectors at a time adding scale back to the sectors would have a net positive impact. Smaller, less diverse prime and tax-exempt MMF sectors would be less resilient, thereby making the MMF industry a less robust funding source for short-term issuance, which runs counter to efforts to strengthen short-term markets. MMFs carry certain risks, as does every other investment vehicle. We believe MMF shareholders understand these risks and choose to invest in our funds because they have historically offered – and continue to offer – an acceptable risk/return tradeoff."

U.K.-based publication Global Treasurer along with Aviva Investors published, "Striving Towards a Green Treasury: Integrating ESG into cash and liquidity management." It starts, "Despite a slow start towards treasurers fully embedding ESG into their cash and liquidity management strategies, signs show that this was pushed back by the pandemic and is now firmly back on many corporate agendas. In fact, our survey found that only 13 percent of respondents believe that ESG and climate-related issues are now firmly embedded in their cash and liquidity management strategies, with the rest admitting that more must be done. Nearly 70 percent did, however, acknowledge that achieving sustainable outcomes is an influential factor when investing cash, with some companies being proactive in embedding ESG into their cash and liquidity management strategies." It continues, "Meanwhile, according to Anthony Callcott, global head of liquidity client solutions at Aviva Investors, although there has been a growing momentum towards embedding ESG for many years, it was suppressed by the pandemic. Today, interest in adopting it in cash and liquidity management is closer to 30-40 percent." On Europe's SFDR, they state, "Our survey also considered the importance corporates place on funds achieving compliance with Article 8 under the EU's Sustainable Finance Disclosure Regulation (SFDR), and whether they would write Article 8 and 9 into their own investment guidelines. Here, it found that the majority of survey respondents (60.8 percent) do place value on an Article 8 investment fund rating, with the proportion that did not attributing this to the need for a more defined SFDR framework for Article 8 funds. Consequentially, 41 percent of respondents said they would write Article 8 and 9 into their investment guidelines, while the rest said they would not (59 percent)." The piece notes, "Here, it found that security, liquidity and yield are considered more important than ESG when it comes to overall investment strategies, with security coming out on top. Liquidity, ranked second, achieving about half of the 'importance' level attributed to security, followed by yield and then ESG performance, with similar levels of importance attached to both.... MMFs were always set up to be seen as a viable alternative to bank deposits as they met the three basic requirements of security, liquidity and yield as well as offering some diversification, but today ESG is coming through as a fourth factor in investment strategies. This includes ensuring an Article 8 classification under SFDR." It adds, "Our survey examined where corporates are investing their short-term cash in today's low interest rate environment, and the impact of central bank tapering. Here, it found that many companies have left their short-term investment strategies largely unchanged, although some have diversified their investments slightly. 'We did shorten maturities in our portfolio during Covid-19 and now that interest rates are rising, and the Bank of England is expected to increase rates again, we are staying with short maturities,' says [Tideway's] Faden da Silva, stressing that her treasury invests cash primarily in MMFs, as well as having bank deposits, and that little has changed in its approach." In related news, Fitch Ratings published a "U.S. ESG Money Market Fund Update (Q1'22)," which says, "On Feb. 28, 2022, Dreyfus announced a partnership with Howard University with a new Black Opportunity for Learning and Development diversity and inclusion share class for the Dreyfus Government Cash Management Fund, according to Fitch Ratings. This is the first announcement in the diversity and inclusion space since the SEC announced its money market fund (MMF) reform proposal in December 2021. As of Mar. 31, 2022, total U.S. environmental, social, and governance (ESG) MMF assets under management (AUM) were $9.4 billion. The AUM increased by $396 million in 1Q22, or 4.4%, while overall prime MMF AUM increased by 4.7%." (See too Crane Data's March 1 News, "Dreyfus Announces New BOLD D&​I Share Class with Howard University." Contact us to request our latest "ESG & Social MMFs" listing.)