ICI's latest "Trends in Mutual Fund Investing, Sept. 2013" shows money fund assets increased by $46.7 billion in September, after increasing $20.4 billion in August and $26.8 billion in July. Money funds assets fell in all of the first four months of 2013 too (down $24.5 billion in April, $57.6 billion in March, $31.7 billion in February, and $9.1 billion in January) but rose $28.3 billion in May (they fell $16.9 billion in June). YTD through 9/30, ICI shows money fund assets down by $13.8 billion, or 0.5%. The Institute's Sept. bond fund totals show a rebound in bond funds, up by $29.9 billion, after falling by $61.0 billon in August, $6.4 billion in July and a record $143.1 billion in June. (Note that assets include gains and losses and differ from "flows".) ICI also released its latest "Month-End Portfolio Holdings of Taxable Money Funds," which confirmed our increase in assets and a sharp rebound in repo holdings. (See Crane Data's October 14 News, "Portfolio Holdings Show Jump in Repo on Fed Program; Drop in Europe.")
ICI's Sept. "Trends" says, "The combined assets of the nation's mutual funds increased by $442.1 billion, or 3.2 percent, to $14.300 trillion in September, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an outflow of $11.33 billion in September, compared with an outflow of $29.14 billion in August."
It adds, "Money market funds had an inflow of $45.64 billion in September, compared with an inflow of $19.87 billion in August. Funds offered primarily to institutions had an inflow of $46.47 billion. Funds offered primarily to individuals had an outflow of $832 million." ICI's "Liquid Assets of Stock Mutual Funds" fell back to a near record low at 3.7% from 3.8%, showing stock funds continue to hold razor thin reserves of cash.
Crane Data's most recent "MFI Daily" shows money fund assets up by $10.9 billion in October through 10/29. From September 30 through October 16, money fund assets declined by $58.4 billion as concerns over the debt ceiling and a possible Treasury technical default surfaced. But money fund assets have risen by $69.3 billion since the extension of the ceiling on October 17. The vast majority of the declines in the first half of October were in Treasury and Government Institutional funds (down $30.9 billion and $21.5 billon, respectively), while Prime Institutional MMFs have gained the lion's share (up $45.9 billion) since 10/16.
ICI's Portfolio Holdings for Sept. 2013 show that Repos rebounded by $45.5 billion, or 10.1% (after a sharp drop in August) to $497.8 billion (20.6% of assets). Repos remains the second largest segment of taxable money fund portfolio holdings behind CDs. Holdings of Certificates of Deposits, still the largest position, rose by $11.0 billion to $532.3 billion (22.0%). Treasury Bills & Securities, the third largest segment, decreased by $3.2 billion to $474.9 billion (19.7%).
Commercial Paper, which fell by $8.4 billion, or 2.3%, remained the fourth largest segment ahead of U.S. Government Agency Securities. CP holdings totaled $364.4 billion (15.1% of assets). Agencies rose by $7.3 billion to $359.9 billion (14.9% of taxable assets). Notes (including Corporate and Bank) rose by $3.5 billion to $90.4 billion (3.7% of assets), and Other holdings rose by $2.3 billion to $84.7 billion (3.5%).
The Number of Accounts Outstanding in ICI's Holdings series for taxable money funds decreased by 443,404 to 24.207 million, while the Number of Funds fell by 3 to 388. The Average Maturity of Portfolios shortened by one day to 48 days in Sept.. Over the past year, WAMs of Taxable money funds have shortened by 1 days.
Note that Crane Data publishes daily asset totals via our Money Fund Intelligence Daily and monthly asset totals via our Money Fund Intelligence XLS. ICI publishes a weekly "Money Market Mutual Fund Assets" summary, as well as the above-referenced monthly asset totals. Each data set and time series contains slight differences among the tracked universes of money market mutual funds. Crane also publishes monthly Money Fund Portfolio Holdings and calculates a monthly Portfolio Composition totals from these (we recently updated our October MFI XLS to reflect the 9/30 composition data and maturity breakouts), while ICI collects a separate monthly Composition series.
Last week, the Federal Reserve issued a statement entitled, "The Federal Reserve Board proposed a rule on Thursday to strengthen the liquidity positions of large financial institutions," which says, "The proposal would for the first time create a standardized minimum liquidity requirement for large and internationally active banking organizations and systemically important, non-bank financial companies designated by the Financial Stability Oversight Council. These institutions would be required to hold minimum amounts of high-quality, liquid assets such as central bank reserves and government and corporate debt that can be converted easily and quickly into cash. Each institution would be required to hold liquidity in an amount equal to or greater than its projected cash outflows minus its projected cash inflows during a short-term stress period. The ratio of the firm's liquid assets to its projected net cash outflow is its "liquidity coverage ratio," or LCR."
"Liquidity is essential to a bank's viability and central to the smooth functioning of the financial system," Chairman Ben S. Bernanke said. "The proposed rule would, for the first time in the United States, put in place a quantitative liquidity requirement that would foster a more resilient and safer financial system in conjunction with other reforms."
The Fed explains, "LCR would apply to all internationally active banking organizations--generally, those with $250 billion or more in total consolidated assets or $10 billion or more in on-balance sheet foreign exposure--and to systemically important, non-bank financial institutions. The proposal also would apply a less stringent, modified LCR to bank holding companies and savings and loan holding companies that are not internationally active, but have more than $50 billion in total assets. Bank holding companies and savings and loan holding companies with substantial insurance subsidiaries and non-bank, systemically important financial institutions with substantial insurance operations are not covered by the proposal."
They add, "The proposal defines various categories of high quality, liquid assets (HQLA) and also specifies how a firm's projected net cash outflows over the stress period would be calculated using common, standardized assumptions about the outflows and inflows associated with specific liabilities, assets, and off-balance-sheet obligations."
"Since financial crises usually begin with a liquidity squeeze that further weakens the capital position of vulnerable firms, it is essential that we adopt liquidity regulations to complement the stronger capital requirements, stress testing, and other enhancements to the regulatory system we have been putting in place over the past several years," Gov. Daniel K. Tarullo said.
It also says, "The liquidity proposal is based on a standard agreed to by the Basel Committee on Banking Supervision. The LCR would also establish an enhanced prudential liquidity standard consistent with section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act."
The statement tells us, "The proposed rule is generally consistent with the Basel Committee's LCR standard, but is more stringent in several areas, including the range of assets that will qualify as HQLA and the assumed rate of outflows of certain kinds of funding. In addition, the proposed transition period is shorter than that included in the Basel agreement. The accelerated transition period reflects a desire to maintain the improved liquidity positions that U.S. institutions have established since the financial crisis, in part as a result of supervisory oversight by the Federal Reserve and other U.S. bank regulators. Under the proposal, U.S. firms would begin the LCR transition period on January 1, 2015, and would be required to be fully compliant by January 1, 2017."
"This rule would help ensure that the liquidity positions of our banking firms do not weaken as memories of the crisis fade," Tarullo said. Finally, the Fed comments, "Federal Reserve developed the proposed rule with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Comments will be received through January 31, 2014."
SunGard announced in a press release, "The Use of Money Market Funds and Independent Dealing Portals Grows, According to SunGard's Annual Corporate Cash Management Study." The SunGard study says, "SunGard has completed its third annual cash management study, which highlights increased use of money market funds and independent portals as companies seek to operate smarter and unlock trapped cash in regulated markets, while finding suitable repositories for large cash balances. Based on responses from more than 160 corporations globally, the study examines corporate treasurers' changing attitudes toward cash investment over the last 12 months, including strategic cash holdings, asset allocation, investment policies and transaction execution." We also review some other portal news from the AFP Conference in Las Vegas. (Note: `Crane Data's Peter Crane speaks this morning on "Emerging Issues in Money Market Funds".)
It explains, "Survey participants responded on behalf of treasury centers located in North America (47 percent), Europe (32 percent), the Middle East and North Africa (6 percent), Asia (5 percent), and Africa and Central, Eastern and Southern Europe (10 percent). Key findings of the report include the following: Forty-three percent of companies increased the amount of surplus cash held -- up from 37 percent in 2012; Since 2012, the proportion of companies holding cash in short-term money market funds (MMFs) -- typically constant net asset value (NAV), AAA-rated MMFs -- has risen from 40 to 52 percent, although the share of cash companies held in these MMFs has decreased from 50 percent to 44 percent; Although the percentage of companies invested in variable NAV MMFs remained steady since last year, corporate investors increased their share of cash held in these MMFs from 36 to 44 percent; A dramatic reduction in the use of telephone transactions for short-term investments has taken place, from 51 percent in 2012 to 30 percent in 2013; and, The preference for independent portals over proprietary bank portals has reversed since 2012, with 35 percent preferring independent portals -- an increase of 15 percentage points."
Vince Tolve, VP of SunGard's brokerage business, comments, "Managing risk has become a growing priority from an operational perspective. Companies are increasingly recognizing the advantages of electronic trading, as well as independent price discovery and execution with multiple counterparties through a single channel." The release adds, "The SGN Short-Term Cash Management portal is a global, multi-fund trading platform that helps corporate treasurers increase efficiency in researching, analyzing and gathering relevant information to help optimize short-term investment strategies."
Another announcement, entitled, "BNY Mellon Releases Liquidity Aggregator," explains, "BNY Mellon, the global leader in investment management and investment services, has added to its arsenal of risk and collateral management-related services with the introduction of the Liquidity Aggregator, available through the company's Liquidity DIRECT portal.... The Liquidity Aggregator, a companion to BNY Mellon's Liquidity DIRECT solution, was created to help clients gain a new level of insight into their investments, across all across all US and Non-US Domiciled Funds in their portfolios."
Kurt Woetzel, CEO of BNY Mellon's Global Collateral Services (GCS) business, tells us, "As Markets expand globally, the need to analyze and quantify your portfolio return and liquidity risk is paramount. The Liquidity Aggregator offers clients a deeper view of exposure and risk, which is essential to managing their investments." Jonathan Spirgel, EVP and head of GCS sales and relationship management at BNY Mellon, adds, "Nearly all financial transactions and commitments have liquidity implications. To be highly effective, liquidity risk management requires insights, tools, products and services that support a client's ability to both maximize liquidity and analyze investment exposure."
The release explains, "The system is designed to help clients actively monitor and help to control liquidity risk exposures and manage funding needs, taking into account security types; country and region of exposure; country and region of risk; weighted average yields and maturities. Clients can leverage the new dashboard across their entire investment portfolio to view: Exposure across all funds with positions; Money market mutual fund full holdings in a single place; Largest holdings in the portfolio by security type and issuer across multiple funds, with the ability to determine shared securities; and Trends and reporting for month-end and at 6-month intervals for money market mutual funds daily yields, WAM and holdings."
Finally, a release titled, "MyTreasury announces addition of BofA fund to its cash investment portal," says, "MyTreasury, a leading multi-product cash investment portal, announces today that its customer BofA Global Capital Management has added several of its domestic BofA Funds to the MyTreasury platform. The addition of the domestic BofA Funds to the MyTreasury portal will help corporate treasurers, municipalities, asset managers and other institutional investors to conveniently and efficiently access BofA Global Capital Management's domestic fund offering. The BofA Funds are conservatively managed money market mutual funds that employ rigorous risk management processes to pursue three key objectives: capital preservation, maintenance of liquidity and competitive yields."
Justin Meadows, CEO of MyTreasury, tells us, "We continue to grow our portal with the strategic addition of U.S.-based funds, and BofA Global Capital Management is a welcome addition to our growing list of fund managers. BofA Global Capital Management's commitment to transparency, high credit quality and diversification in their offerings is very much in line with our value proposition, which will help to greatly simplify our customers' due diligence process, and assist them in making key decisions most suitable to their investment policies."
On Friday, Federated Investors, the third largest manager of money market mutual funds with over $226 billon (according to Crane Data's Money Fund Intelligence XLS), held its third quarter earnings conference call, and, as usual, CEO and President J. Christopher Donahue weighed in on a number of issues impacting money market funds, including the SEC's Money Market Fund Reform Proposals. (See the transcript of the call from Seeking Alpha here.) He said, "Looking first to cash management. Period-end money market fund assets increased by $5 billion from Q2, while average money market fund assets decreased by $3 billion. We saw gains in government funds, partially offset by lower assets in Prime and Muni. Our market share was just under 9%. The impact of yield-related fee waivers increased in the third quarter as repo rates declined substantially from the prior quarter."
Donahue commented, "On the regulatory front, Federated filed a series of comment letters in response to the SEC's money market fund proposal, which was published in June. We were heartened to see that many of our clients and issuers that we invest with went on the record to express their strong concern with the measures proposed by the SEC. The overall response to the SEC has been broad based. Many individuals and groups representing literally millions of businesses, treasury and financial professionals, as well as state and local government finance professionals and investment officers have submitted their views for consideration. These responses overwhelmingly express opposition to Alternative One, the SEC's floating NAV proposal. In fact, over 98% of the more than 1,400 letters expressed opposition to the SEC's floating NAV proposal."
He continued, "Some of the noteworthy groups going on the record against the floating NAV proposal include the U.S. Chamber of Commerce, representing more than 3 million businesses and organizations; the American Bankers Association, the voice of the $14 trillion dollar banking industry; the Association for Financial Professionals, representing more than 16,000 treasury and financial professionals; the American Council of Life Insurers, representing 300 members and 90% of the assets and premiums of the life and annuity industry; and a host of government and municipal finance and investment organizations like the National Association of State Treasurers, the U.S. Conference of Mayors, the National League of Cities, and others."
Donahue explained, "Now approximately 90% of the comments supported Alternative Two, which is the voluntary gating and fees concept that was proposed. And many proposed to accept this, but with modifications. Given the significant issues raised by Federated and others, we expect a lengthy review process that is likely to go into 2014. We, and many others, find that the case has not been made for floating the NAV of a money fund as a remedy for the regulator's expressed concern about increased redemptions in periods of market stress. Floating the NAV would impose significant operational burdens, create extensive new tax and recordkeeping requirements and result in enormous new cost for system reprogramming and recordkeeping. Less efficient capital formation would add material cost for corporations and other issuers in a post-institutional prime money fund world."
He also said, "While the costs are large and burdensome, the benefits are illusory at best. We believe that there is no discernible, meaningful benefit that would be achieved by floating the NAV. And certainly, there would be no benefit in stopping so-called runs. In contrast with the floating NAV, gating, that is giving the fund's Board of Directors the option of imposing a temporary gate on redemptions in extremely rare occurrences of dysfunctional market conditions, promotes the equal treatment of investors and improves the financial markets by stopping a run dead in its tracks. It has proven to be effective in practice, recall the Putnam transaction in '08, and most importantly, preserves the critical features and benefits of money funds."
Donahue told the call, "Money funds continue to enhance our financial system and to operate effectively. The recent U.S. government debt ceiling crisis is only the latest in a series of tests that money funds have convincingly passed since the extensive regulatory changes were enacted in 2010. We expect that sound policy will win out, thereby preserving the crucial features of money funds that have made them so important to tens of millions of investors, to thousands of short-term debt issuers, including state local government entities and corporations."
In response to a question on the timing of final SEC regulations, Donahue added, "[B]ecause of the depth and the high quality of the comments, it would take them [SEC] a good bit of time to get through all that and we would be well into 2014. If you press me on it, I don't think they can get it done in the first quarter of 2014. And after that, that's up to the worker bees at the SEC. And don't forget, they did have a couple of weeks off. So it's impossible to exactly say when this will come about. But that would be about as close as I could guesstimate. And remember, I don't control it and I don't have any inside information."
Finally, Debbie Cunningham commented, "I'll just add one comment, and that is that for the 2009 proposals, that ultimately resulted in the 2010 amendment, there were slightly less than 200 pages in length and much, much less in the context of the actual potential changes that could be occurring. That was a 5.5-month process for the SEC to review those comments. This document is nearly 700 pages long. So I don't know whether you can interpolate from that or not, but just a comment."
Money market mutual funds continued rebounding strongly from their debt ceiling concern-related declines in the latest week. ICI's latest "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets increased by $54.55 billion to $2.668 trillion for the week ended Wednesday, October 23, the Investment Company Institute reported today. Taxable government funds increased by $28.13 billion, taxable non-government funds increased by $28.31 billion, and tax-exempt funds decreased by $1.89 billion." According to our MFI Daily, money fund assets have increased for 5 consecutive days, every day since the resolution was announced on October 16.
Money fund assets had declined by $52.3 billion last week -- their largest drop since August 2, 2011 (the week of the last debt ceiling scare) -- and their rebound this week was the largest since Jan. 7, 2009. Year-to-date, money fund assets are now up, though fractionally, for the year, up $3 billion, or 0.1%. Since May 1 of this year, money fund assets have increased by $105 billion, or 4.1%. According to our daily statistics, money fund assets rose by $8.9 billion Oct. 17, $16.2 billion on Oct. 18, $1.8 billion on Oct. 21, $11.7 billion on Oct. 22, and $9.7 billion on Oct. 23.
ICI's latest weekly explains, "Assets of retail money market funds decreased by $8.45 billion to $928.13 billion. Taxable government money market fund assets in the retail category decreased by $1.58 billion to $198.61 billion, taxable non-government money market fund assets decreased by $5.50 billion to $536.23 billion, and tax-exempt fund assets decreased by $1.37 billion to $193.30 billion."
It adds, "Assets of institutional money market funds increased by $63.00 billion to $1.740 trillion. Among institutional funds, taxable government money market fund assets increased by $29.71 billion to $725.59 billion, taxable non-government money market fund assets increased by $33.80 billion to $943.62 billion, and tax-exempt fund assets decreased by $520 million to $70.52 billion."
In other news, ICI also posted a "Viewpoint" earlier this week entitled, "'Sponsor Support' for Money Market Funds Is Old -- and Overblown -- News <i:http://www.ici.org/viewpoints>`_." It explains, "A story in the October 21 issue of the Financial Times ("Almost 20 money market funds bailed out") takes old numbers and tries to present them as news. Contrary to its suggestion, U.S. money market funds have not incurred threatening losses since the financial crisis of 2007–2009."
Mike McNamee writes, "At ICI, we've looked at every data source available on sponsor support -- a study by the Federal Reserve Bank of Boston, data from the U.S. Securities and Exchange Commission, and public filings of fund sponsors. These data show that in almost every case, "support" in 2010 and 2011 reflected sponsors' decisions to remove very small losses incurred during the financial crisis from their funds' books. Those actions were caused by the financial crisis -- not by later events."
He tells us, "The exceptions? In three cases, the funds' sponsors bought downgraded securities out of the funds' portfolios to maintain the funds' AAA ratings. In three other cases, the sponsors bought the funds' holdings of British Petroleum securities to limit risks to investors in the middle of the Deepwater Horizon oil spill. At no time was any of those six funds in danger of taking losses or breaking the dollar, and the sponsors received full value when the purchased securities matured."
Finally, ICI says, "All of these instances have been well known to regulators and rating agencies for a year, as evidenced by this article. And nothing we have seen since -- including the outflows caused by last week's standoff over the U.S. debt ceiling -- indicates that money market funds have needed support "to prevent them from making losses since the 2007-09 financial crisis."
Following a host of portals and fund companies that have launched "transparency" modules over the past two years, Goldman Sachs has joined the trend, launching a new module for monitoring money fund portfolio holdings. A press release entitled, "Goldman Sachs Asset Management Continues Commitment to Money Market Fund Transparency With Launch of Risk Management Platform," and subtitled, "Transparency Insight Tool Presents Liquidity Portfolios' Risk Exposure Through The Lens Of GSAM's Portfolio Managers," explains, "Potential regulations and shifting markets have prompted investors to seek a deeper understanding of money market funds' underlying holdings and associated risks from countries, issuers and asset classes. To help investors evaluate their current and potential liquidity investments, Goldman Sachs Asset Management ("GSAM") today announced the launch of Transparency Insight, an innovative risk management tool for liquidity portfolios. Transparency Insight combines data-rich views of fund holdings with industry-leading analytics that allow investors to consider their risk exposure the same way as GSAM's money market fund portfolio managers."
James McNamara, Managing Director and President of Goldman Sachs Mutual Funds, comments, "Corporate treasury departments are getting smaller. At the same time, regulatory changes and dynamic market conditions are fueling demand for greater transparency in liquidity products. As a leading provider of liquidity solutions, GSAM has been able to apply its insights from more than 30 years of managing risk in money market portfolios to create an intuitive risk management tool that helps treasury departments better understand their exposure in money market fund portfolios."
The press release explains, "Transparency Insight's key features include: Portfolio insights and analytics presented through the lens of GSAM's money market fund portfolio managers; Ability to perform side-by-side comparison of secured and unsecured risk in funds to inform investment decisions; Standardized asset classifications, issuer names and country exposures to ensure a consistent view of all securities across a portfolio, with data provided by iMoneyNet, a leader in money market fund information; and, Dashboard-style reporting of direct and indirect country, direct issuer and sponsor exposures for individual GSAM and third party funds and across global portfolios."
Kathleen Hughes, Managing Director and Head of the Global Liquidity Sales team, adds, "We aim to be an extension of our client's treasury teams by offering tools, access to research and best practices to help our clients increase operational efficiency and manage risk. Transparency Insight incorporates our brightest insights and deepest expertise to provide an unprecedented level of transparency into liquidity portfolios."
The release also adds, "Transparency Insight is available as a standalone risk assessment tool as well as through the Goldman Sachs Global Liquidity Services Portal, which delivers streamlined liquidity management capabilities, broad investment opportunities and comprehensive tools and resources for trading, reporting, and researching needs. Goldman Sachs Asset Management is the asset management arm of The Goldman Sachs Group, Inc. (NYSE: GS), which oversees $991 billion in assets under supervision as of September 30, 2013." Goldman Sachs is the 8th largest manager of money funds with over $126 billion according to our monthly Money Fund Intelligence XLS.
Today, we excerpt from our latest Money Fund Intelligence newsletter. Our October issue contains a "Fund Profile" entitled, "Fidelity's Prior Discusses Comment Letter, Future." It says: This month, we again interview Fidelity Investment Money Market Group President Nancy Prior, and ask about Fidelity's recent comment letter on the SEC's Money Market Fund Reform Proposal, as well as several other topics. (See our previous June 2012 MFI interview, "New Queen of Cash: Fidelity's Nancy Prior.") Fidelity manages over $432 billion in money fund assets, over 17.0% of the total $2.6 trillion. Our Q&A follows.
MFI: What was the main thrust of your comment letter? Prior: Overall, we think that the SEC has taken the right approach, which was to narrowly tailor the reform proposals at those funds that have shown that they may be susceptible to large redemptions. But we think in the execution of that approach, there were some areas where the SEC nailed it but also some missteps. With respect to Treasury and government money market funds, we think they got it right. Those funds have shown that they are not susceptible to runs. So we think the SEC was right to exclude those funds from reform. But where we think they really missed the mark is with respect to the municipal funds. We firmly believe that the municipal funds should not be subject to either the floating NAV or the fees and gates proposal.
[M]unicipal funds are not susceptible to sudden redemptions, and that was proven out both in the market volatility of 2008 as well as in the summer 2011. Those funds have shown themselves to be very stable in terms of their investor base. When we look at the portfolio composition of the municipal funds -- their high level of liquidity, their very low interest rate risk, and their high credit quality -- we again believe that that portfolio construction supports excluding muni funds from the reforms. Finally, there are real costs associated with potentially regulating muni funds where they are less attractive to investors. [M]uni funds are by far the dominant buyer of municipal money market securities. So, in the event those funds are less attractive, that would translate into a real direct cost for those issuers that rely on muni funds, like states and cities and nonprofits.
MFI: What about Prime Institutional? Prior: The data does show that institutional prime funds have been susceptible to large redemptions, so targeting institutional prime funds seems right.... [But] if what the SEC is attempting to do is to address run risk, then a more effective way of doing that is by imposing the fees and gates. We've seen no evidence that suggests that a floating NAV would achieve the SEC's policy objectives. In fact we think that more disclosure of market value NAVs, something that Fidelity and others in the industry have been doing for several months now, is a very effective means of highlighting to shareholders that there are very small fluctuations in the market value of underlying portfolios. So we think the SEC's goal with respect to highlighting movements in the NAV could be achieved through disclosure.
We believe that excluding Treasury, government and muni funds is supported by the data. So it's difficult to argue that the data supports a statement that institutional prime funds have not shown to be susceptible to large redemptions. You've got to be pure in your analysis and examine all of the data equally, and let the data drive the regulatory reform.
MFI: How about your retail definition? Prior: We looked at the definition that the SEC put out, and believe it is an arbitrary cap on shareholder access to cash every single day and would be overly burdensome.... The cost and the complexity associated with imposing a daily cap didn't feel like the right balance to us. It also potentially leads to disparate treatment of shareholders in the same fund.... We really think that a fund should treat all shareholders in it the same, and therefore, allowing one shareholder to redeem more than a cap because they give advance notice or allowing a shareholder to take out more than a cap because it happens to be held it in a 401k plan, really leads to disparate treatment within a fund.
We again agree with the SEC's policy objective, which is to recognize that individuals behave differently than institutions as investors in money funds. Retail funds have shown that they are not subject to sudden, large redemptions. The SEC's policy goal is to preserve stable NAV products for individuals who invest, that is, for people. So we focused on proposing a definition that doesn't try to track money on the way out of a fund.... People have social security numbers, so we thought it would be more prudent to rely on our current regulatory scheme.... We believe that it is better to rely on that infrastructure and determine that a retail fund is one that only allows accounts for which the account holder or the beneficial owner has a social security number. It's a very simple solution, it's very transparent, very easy to implement, very easy to enforce, and every shareholder in a fund will treated the same way.
MFI: What about the additional disclosure requirements? Prior: Generally, we are supportive of more disclosure. As I said, we have been disclosing fund market value NAVs on the web since January 2013. We are supportive of website disclosure of 1- and 7-day liquidity on a historical basis. Where we think there may be potential ways to improve the disclosure proposal is in connection with lot-level information. We support disclosure that will help shareholders and regulators understand the funds, but which is not overly burdensome.
Look for more excerpts from the interview with Fidelity's Nancy Prior in coming days, or contact us to request our October issue of Money Fund Intelligence.
A press release entitled, "Goldman Sachs Asset Management to Acquire RBS' Money Market Funds," says, "Goldman Sachs Asset Management ("GSAM") announced today that it will acquire the Global Treasury Funds, which are a range of money market funds managed by RBS Asset Management ("RBSAM"). GSAM has a long history of partnering with institutions to deliver liquidity solutions and over 30 years of experience managing money market funds using a conservative approach. This transaction complements GSAM's strong fixed income and liquidity management businesses in Europe and globally." Prior to the merger, GSAM was the 4th largest manager of "offshore" money funds (those sold to multinationals and domiciled in Dublin or Luxemburg) with over $61 billion in USD, Sterling and Euro money funds. Goldman is the 8th largest manager of U.S. money funds with over $126 billion (according to our MFI XLS).
The press release quotes Timothy J. O'Neill and Eric S. Lane, co-heads of the Investment Management Division at Goldman Sachs, "GSAM's acquisition of these money market funds emphasizes our strong and continued commitment to providing liquidity solutions on a global scale."
Kathleen Hughes, GSAM's Global Head of Liquidity Sales and European Head of Institutional Sales, adds, "GSAM is a global leader in liquidity management with $195 billion in money market fund assets under management, 33% of which is in Europe (source: GSAM). This acquisition has the potential to nearly double the size of our Sterling-denominated offering and strengthen GSAM's position in the European market, ensuring we are well positioned to deliver the scale and service that our clients have come to expect."
Scott McMunn, CEO of RBSAM, comments on the transaction, "From RBS's perspective, this transaction represents another stage in our strategic plan to focus on our core customer franchises. We are confident that this represents the best deal for our clients." The release adds, "RBS has decided to exit, confident that GSAM can provide its current clients with high caliber money market solutions and services."
It also says, "Both RBS and GSAM are fully committed to continuing excellent service for RBS money market fund clients and will work in partnership to ensure a seamless transition. There will be no changes in how accounts will be managed during the transition period and no expenses will be borne by any of the funds or investors. The transaction is expected to close in the first quarter of 2014, subject to approval by the Central Bank of Ireland and the Irish Stock Exchange (the Global Treasury Funds are Irish domiciled funds), as well as a fund investor vote."
Crane Data's Money Fund Intelligence International, which tracks the offshore money fund market, tracks 24 managers (including RBS) overseeing almost $650 billion in assets, with $345 billion in US dollar funds, E77 billion in Euro funds, and L123 billion in Pound Sterling funds.
On Friday, the Federal Reserve Bank of New York released a "Statement to Revise Terms of Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise," which says, "As noted in the September 20, 2013 Statement Regarding Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise, the Open Market Trading Desk (the Desk) at the Federal Reserve Bank of New York has been conducting daily, overnight fixed-rate reverse repo operations as part of an operational readiness exercise. Beginning with the operation to be conducted on Monday, October 21, the Desk will increase the fixed rate offered in these operations from one basis point to two basis points. All other terms of the exercise will remain the same."
The new statement adds, "As an operational readiness exercise, this work is a matter of prudent advance planning by the Federal Reserve. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."
The NY Fed's original "Statement Regarding Overnight Fixed-Rate Reverse Repurchase Agreement Operational Exercise," explained, "As noted in the October 19, 2009, Statement Regarding Reverse Repurchase Agreements, 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 (Committee). RRPs are a tool that can be used for managing money market interest rates, and are expected to provide the Federal Reserve with greater control over short-term rates."
The statement explained, "The Desk continues to enhance operational readiness through technical exercises that are limited in size and scope. This week, the Committee instructed the Desk to further examine how a potential overnight, fixed-rate full-allotment RRP facility might work and how it might affect short-term interest rates. In support of this goal, and within the context of a limited technical exercise, the Committee authorized the Desk to conduct a series of daily overnight, fixed-rate RRP operations beginning the week of September 23, 2013 and potentially extending through January 29, 2014."
It added, "This exercise may be somewhat larger in size than past operational exercises and will be ongoing for at least a period of weeks to gain operational experience with larger transactional flows and to provide additional information about how such operations might improve interest rate control regardless of the size of the Federal Reserve's balance sheet."
The New York Fed continued, "Like prior technical exercises, this exercise is not intended to materially affect the current level of short-term interest rates. To reinforce this, each eligible counterparty will be initially limited to a maximum bid amount of $500 million. In addition, the initial fixed rate for the RRP operations will be set at 0.01 percent (one basis point), which is below current market rates. The maximum bid amount and rate may vary over the life of the exercise, but as authorized by the Committee, will not exceed $1 billion and 0.05 percent (five basis points), respectively. Changes to the maximum bid amount and rate for these RRP operations will be announced with at least one business day prior notice on the New York Fed's public website."
Finally, their original statement said, "The operations will be open to all eligible RRP counterparties, will use Treasury collateral, will settle same-day, and will have an overnight tenor. The RRP operations will be held, at least initially, from 11:15 am to 11:45 am (Eastern Time). Like earlier operational readiness exercises, this work is a matter of prudent advance planning by the Federal Reserve. These operations do not represent a change in the stance of monetary policy, and no inference should be drawn about the timing of any change in the stance of monetary policy in the future."
As we mentioned in our Oct. 14 News, "Portfolio Holdings Show Jump in Repo on Fed Program; Drop in Europe", the New York Fed is now the second largest "issuer" of repo to money market funds with $44.7 billion of repo outstanding (9.1% of the total) as of Sept. 30, 2013.
The ICI's latest weekly "Money Market Mutual Fund Assets" says, "Total money market mutual fund assets decreased by $52.30 billion to $2.613 trillion for the week ended Wednesday, October 16, the Investment Company Institute reported today. Taxable government funds decreased by $36.40 billion, taxable non-government funds decreased by $15.85 billion, and tax-exempt funds decreased by $60 million." After rising almost $100 billion in the 3rd quarter, money fund assets declined by $80 billion over the past three weeks. Year-to-date, money fund assets have declined by $51 billion, or 1.9%.
ICI Chief Economist Brian Reid comments, "Though money market fund outflows picked up as the debt ceiling deadline approached, the flows were modest and well within the range that funds can easily accommodate, given their high liquidity requirements. Specifically, taxable government fund outflows totaled 4 percent of these fund assets, while prime funds had only modest outflows, totaling 1 percent of assets."
The release continues, "Assets of retail money market funds increased by $890 million to $936.66 billion. Taxable government money market fund assets in the retail category decreased by $710 million to $200.19 billion, taxable non-government money market fund assets increased by $1.26 billion to $541.81 billion, and tax-exempt fund assets increased by $340 million to $194.67 billion.... Assets of institutional money market funds decreased by $53.19 billion to $1.677 trillion. Among institutional funds, taxable government money market fund assets decreased by $35.69 billion to $695.89 billion, taxable non-government money market fund assets decreased by $17.11 billion to $909.81 billion, and tax-exempt fund assets decreased by $400 million to $71.03 billion."
In other news, we missed commenting on a Viewpoint by ICI's Brian Reid entitled, "Money Market Funds and the Debt Ceiling: What Do We Know?. Earlier this week, Reid wrote [prior to the extension of the ceiling], "As the U.S. Treasury reaches the limits of its borrowing authority this week, markets and the media are focusing on the risk that the United States will default on its debt and fail to pay interest or principal on maturing Treasury securities, perhaps before the end of October. Some of that attention has fallen on money market funds and how they would be affected by a default."
He continued, "I will explain in detail below, but here are three points worth remembering: 1. Money fund managers already are positioning their portfolios to minimize any impact of a default on the funds and their investors. 2. Outflows from money market funds have been minimal to date, and funds are easily accommodating these outflows. They hold large amounts of liquidity to meet redemptions. 3. No one knows exactly what will happen in the event of a default -- which would be an unfortunate historical first in this country -- but money market funds won't be uniquely affected."
Reid explained, "In general, we know that money market fund managers are taking steps to ensure that their funds maintain continued high levels of liquidity as we approach the second half of October. Some funds are holding more cash; others are selling Treasury securities that mature in late October or early November. Some are investing in later-maturing Treasuries that are less likely to be affected in the immediate aftermath of a default."
He added, "We saw managers take similar action in the summer of 2011, when the United States faced another debt ceiling deadline in addition to market pressures from eurozone debt problems. At that time, money market funds experienced modest outflows -- 4 percent of total assets came out of prime funds, while 8 percent of total assets came out of government funds. But thanks in part to the minimum-liquidity requirements imposed on money market funds by the Securities and Exchange Commission in 2010, the funds met those redemptions and came through the summer of 2011 without experiencing any problems."
Earlier this month, the Investment Company Institute released its latest data on "Worldwide Mutual Fund Assets and Flows (Second Quarter 2013," which shows that money market mutual funds have shrunk to their lowest percentage of worldwide mutual fund assets (16.1%) on record. (ICI began publishing their Worldwide statistics in 2004.) The latest data show worldwide money market mutual fund assets falling by $164.9 billion, led by large declines in Australian, French and Chinese MMFs, in Q2'13 and by $89.3 billion over the past year (through 6/30/13) to $4.494 trillion. Crane Data excerpts from ICI's release and analyzes the money fund portion of the ICI's latest global statistics, and we also quote from BlackRock's latest earnings call, below.
ICI's latest Worldwide release says, "Mutual fund assets worldwide decreased 1.5 percent to $27.44 trillion at the end of the second quarter of 2013. Worldwide net cash flow to all funds was $83 billion in the second quarter, compared to $331 billion of net inflows in the first quarter of 2013. Flows into long-term funds decreased to $193 billion in the second quarter, from an inflow of $450 billion in the previous quarter. Equity funds worldwide had net inflows of $37 billion in the second quarter, down from $143 billion of net inflows in the first quarter. Flows into bond funds totaled $41 billion in the second quarter, down from net inflows of $190 billion in the previous quarter. Outflows from money market funds were $110 billion in the second quarter of 2013, similar to the $119 billion outflow recorded in the first quarter of 2013."
The release explains, "The Investment Company Institute compiles worldwide statistics on behalf of the International Investment Funds Association, an organization of national mutual fund associations. The collection for the second quarter of 2013 contains statistics from 45 countries."
ICI continues, "Money market funds worldwide experienced a net outflow of $110 billion in the second quarter of 2013 after recording a net outflow of $119 billion in the first quarter of 2013. The global outflow from money market funds in the second quarter was driven predominately by outflows of $69 billion in Europe and $33 billion in the Asia and Pacific region. Money market funds in the Americas registered outflows of $9 billion in the second quarter."
According to Crane Data's analysis of ICI's data, the U.S. maintained its position as the largest money fund market in Q2'13 with $2.585 trillion (57.5% of all worldwide MMF assets), though assets declined by $10.4 billion in Q2'13 (they were up by $72B in the past year). France remained a distant No. 2 (and continues to shrink dramatically) to the U.S. with $432 billion (9.6%, down $43 billion in Q2, down $51B over 1 year and down a shocking $261 billion since the end of 2009). This was followed by Ireland ($348 billion, or 7.7% of total assets, down $15B in Q2 and down $25B over 12 months). Luxembourg returned to 4th place in the latest quarter with a drop of just $2 billion in the quarter and $36B in the past year to $324B (7.2%), surpassing new No. 5 Australia, ($296B, 6.6% of the total, down $58B in Q2 and down $29B for 1 year).
Korea ($61B, down $7B and up $3B on the quarter and year, respectively), Mexico ($57B, down $1B and up $1B), and Brazil ($51B, down $5B and up $7B), all moved up ahead of China, which saw assets plummet($50B, down $34B in Q2 and down $7 billion in 12 months). Taiwan rounded out the 10 largest countries with money funds (moving ahead of India and Canada). Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have primarily domestic money fund offerings. (Crane Data believes that some of these countries, like France and Italy, do not have true "money market funds" due to their lack of strict guidelines and "accumulating" NAVs instead of stable NAVs. Contact us if you'd like a copy of our "Largest Money Market Funds Markets Worldwide" spreadsheet based on ICI's data.)
In other news, BlackRock hosted its latest quarterly earnings call yesterday, though there were very few mentions of money market funds. (See Seeking Alpha's transcript here.) When Chairman & CEO Larry Fink was asked about the debt ceiling, he said, "Well, let me just state overall [that] we have dozens of teams working on contingent plans throughout the organization. Our job is to be a fiduciary and our job is to focus on even the unanticipated risk associated with any default. So beyond our money market funds, I think it would be incorrect to think that that's all we're focusing on related to default, there are many municipal bond market to collateral management of swaps to working with the custodians. You'll have to understand, the rating agencies, even if only one treasury bond, this is a coupon payment, definitionally, the entire sector then is considered a defaulted security. And so we have to be prepared for all the contingencies, whether they're T-bills or any other bond, U.S. bond, instrument. And so, I think, we're doing a very good job without getting in, in any of the details to making sure that we're anticipating those unanticipated problems associated with this type of event."
He added, "As we all know, when you think back about the Lehman Brothers result, everybody thought that Lehman Brothers was it. But then when the Reserve Fund had that Lehman Brothers exposure; that's when I believe that we really fell off a cliff 5 years ago. And so our job is having these task teams working towards all the unanticipated possibilities that would occur in terms of collateral management, in terms of clearing, in terms of what is considered good collateral and bad collateral. So in addition to our money market funds, where we're obviously very focused on, we're focused at across all different of our platforms."
Fink was then asked about being designated a SIFI and the recent OFR report. (See our Oct. 1 "News," "Moody's on Fed's Reverse Repo Facility; OFR on Asset Management.") He replied, "I think you're aware we have capital set aside for operational risk, that was a condition we had with our U.K. and U.S. regulators. So unlike many other asset managers, we are already in that position. We are already regulated because of PNC's 20% ownership with us by the Federal Reserve. We are regulated by the Comptroller of the Currency because of our bank trust division that we bought when we acquired -- when we bought BGI. So we have -- we're a firm that is very heavily regulated across region and across all the different regulators. So your question is a good question, but I can't answer it. But I can say we have -- we are -- we have regulatory oversight by many of those regulators that other firms, if they were a SIFI, do not at this present time."
Fink added, "And it's a good question, what does that mean? Because the OFR did state, we are not a bank, we're a fiduciary, we're an agent. And OFR stated that these are not our assets, we're not levered, so I honestly don't know what it would mean if they designated a bunch of firms as SIFIs. And that's why my comment was very specific related to one of the ways that we've read into the OFR is that maybe they are going to regulate specific products like money market funds. But they may begin some type of supervision over, let's say, all types of products that have some 'x' amount of leverage. So that would incorporate leverage type of hedge funds and other types of products like that. So we're not -- this is too early in the dialogue, too early, I believe, in the regulatory reviews of what they're going to do. But I think the OFR report was a very fair, in my mind, a very just report about what asset managers are and unjustly cited some risks associated with some of the types of businesses that asset managers are in. And so we are working alongside with regulators in responding to their questions as best we can."
On Monday afternoon, Federated Investors hosted a call entitled, "Debt Ceiling Implications for Money Market Funds." Sue Hill, Senior VP and Senior PM of Federated's Government Money Market Funds, says, "Washington still thrives on drama and requires it to get anything done.... The media loves drama as well.... The reality is there's still quite a bit of time left in this particular drama, at least by Washington standards.... We've been through this before in the summer of 2011.... It's widely portrayed by the media that the drop-dead date is Oct. 17, but in fact this really isn't the case. Secretary Lew [stated that the] Treasury would have approx $30 billion in cash on hand as of this date.... Early November seems to be the favorite drop-dead date at this point. What is clear is that the 17th is not the drop dead date.... The best course of action for now from a portfolio management standpoint really seems to be to keep calm and carry on."
She continues, "Our approach going into this crisis has been to ensure that our portfolios have ample liquidity in the event that our clients need reassurance that they can have access to their cash in case they need it.... We've done this by striving to have overnight or short-term liquidity [and the flexibility] to sit in actual cash if need be.... Funds that we manage that don't use repo to maintain liquidity through a structured ladder [have had] pretty significant positions maturing.... [Our] Prime fund portfolios are not typical buyers of Treasury and agency paper. As a result, they've escaped the latest trauma, but they're also being managed with an emphasis towards greater liquidity."
Hill explains, "We and others in the industry have experienced what I'll term modest outflows in recent days, primarily out of Treasury and Govt MMFs. This pattern is consistent with the experiences of 2011, but so far has been well below the level of asset outflows during that period. This of course could be because we are, again, still kind of early in this game, but probably is greater attributed to the lack of unlimited FDIC insurance coverage for non-interest bearing DDAs today. Those who manage these types of funds know a change in assets of this size really isn't alarming.... This same group of funds brought in over $30 billion during the last 2 weeks of Sept.... So I'm not saying that government MMFs haven't experienced declines recently, but it's important to understand what factors are at work behind that, and it's relatively modest in the grand scheme of things."
She tells listeners, "We've seen a backup in yields in very short-term T-bills, those with maturities in the Oct.-Nov. timeframe in particular.... This backup was in large part because traditional participants were sitting on the sidelines [in auctions].... Importantly, we also saw non-traditional buyers come into the traditionally too expensive to bother with Treasury market ... once yields got up to a certain level.... Repo markets have been similarly dislocated over this period with a rise in repo rates to about 20 bps retracing to about 12-14 bps on Friday."
Hill comments, "As you've probably gathered, we think the probability of default really is quite low. Let me reassure you though, that we've done extensive contingency planning in the event that the unimaginable were to happen, if that default does in fact occur. First, there will not be a failure to pay on Treasury bills. Because the debt ceiling is the defining constraint towards the Treasury actually raising cash, the simple act of having treasury bills mature on any given day should free up enough room under the debt ceiling for Treasury to reissue these or just roll them over.... There's no doubt that the newly issued bill will come at a high cost ... but the market experience from last week indicates there are buyers willing to come in at a price."
She adds, "So an actual payment default on a Treasury security, if one were to occur, would likely be limited to the interest payment on a coupon-bearing security, an event that would not be desireable but not as disruptive as a missed principal payment. But I want to say very clearly that a technical default on a Treasury security would not pose a threat to a fund's net asset value.... Rule 2a-7 does not force a fund to sell securities that are in default, rather the board of a fund could make the determination that holding onto the security, because payment would be expected in full, would be in the best interest of the fund's shareholders.... [Contrary to Bill Gross' comments], a fund's valuation procedures ... would absolutely permit that board to value the security with an appreciation that full payment is to be expected." She also mentions that SIFMA working to keep defaulted securities tradeable.
Hill says, "The other question I often get is, 'Could market movement result in the fund breaking the buck?' Here I think it's important to look closely at the extreme market movements of the past week and look at how really small the price impact has been.... All things being equal, a fund with a 60 day average maturity could withstand a 300 basis point instantaneous upward shift in rates before the NAV of the fund would be called into question. So the market moves we've seen over this past week are really literally just fractions of that. So if the NAV is not affected either by default or market movements, then this really comes down to an excercise in liquidity.... As long as funds take the appropriate steps, which we have and which I think others in the industry have ... I'm confident we'll all be looking back at this latest episode as a textbook example of why the current regulations for money funds really do in fact work."
She adds, "Finally, I'd be remiss if I didn't comment on the actions that some of my competitors have rather publicly announced in recent days with respect to the disposing of securities in the late October to early Nov. timeframe. I can only assume that these fund companies they made the choices they did for investment reasons rather than for marketing purposes.... I'd like to thank all of you ... who have taken the time to understand the reality behind the headlines in this particular manufactured drama. As I've outlineed before, managing to a particular date that has not been clearly-defined really creates its own set of challenges.... To chase this date during the more recent market turmoil really does not seem to be particularly prudent."
Finally, Hill says, "We do in fact own some Treasuries within that timeframe selected, but not [in] all of our portfolios.... To date, we're comfortable with how things are playing out in Washington and confident we have the liquidity and fund positioning to manage through this time period. Furthermore, we know that Oct. 17 is not the date, and that Treasury bill maturities free up space under the debt ceiling for new auctions. The headlines in the media will of course suggest otherwise and Washington will as always lean towards the dramatic. Let me assure you though that we always have your best interests at heart, and should this conflict really shift from the media and political circus that it seems to be to being a real threat, that we still have the time and flexibility to take whatever steps are appropriate to protect those particular interests."
Crane Data released its October Money Fund Portfolio Holdings data last week, and our latest collection of taxable money market securities, with data as of Sept. 30, 2013, shows a jump in Repos (the debut of the tri-party repo program from the New York Fed added $44.7 billion to repo totals), CDs and Agencies, increases in VRDNs, Treasuries and Treasuries, and a sharp drop in CP and "Other" holdings (which includes Time Deposits). Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) increased by $55.3 billion in September to $2.472 trillion. Portfolio assets rose by $1.1 billion in August and $68.9 billion in July, but fell $30.1 billion in June. CDs remained the largest holding among taxable money funds, followed by Repo, then Treasuries, CP, Agencies, Other, and VRDNs. Money funds' European-affiliated holdings (including repo) dropped to 27.5%. Below, we review our latest portfolio holdings statistics.
Among all taxable money funds, Certificates of Deposit (CD) holdings increased by $14.2 billion to $524.8 billion, or 21.2% of holdings. Repurchase agreement (repo) holdings moved into the second largest holdings spot with a jump of $41.4 billion to $489.0 billion, or 19.8% of fund assets. Even with concerns over the debt ceiling, Treasury holdings increased by $8.1 billion to $483.0 billion (19.5% of holdings) but dropped into the third place spot. Commercial Paper (CP), the fourth largest segment, plunged $22.5 billion to $391.8 billion (15.9% of holdings). Government Agency Debt increased by $14.2 billion; it now totals $362.8 billion (14.7% of assets). Other holdings, which include Time Deposits, fell by $11.7 billion to $162.8 billion (6.6% of assets). VRDNs held by taxable funds rebounded by $11.7 billion to $57.5 billion (2.3% of assets). (Crane Data's Tax Exempt fund data was released in a separate series on Friday.)
Among Prime money funds, CDs still represent about one-third of holdings, or 34.0%, followed by Commercial Paper (25.4%). The CP totals are primarily Financial Company CP (13.9% of holdings) with Asset-Backed CP making up 6.2% and Other CP (non-financial) making up 5.3%. Prime funds also hold 7.0% in Agencies, 6.3% in Treasury Debt, 2.3% in Other Instruments, 5.5% in Other Notes, and 2.6% in Other (including Time Deposits). Prime money fund holdings tracked by Crane Data total $1.544 trillion, or 62.5% of taxable money fund holdings' total of $2.472 trillion.
European-affiliated holdings decreased by $42 billion in September to $678.7 billion (among all taxable funds and including repos); their share of holdings fell to 27.5%. Eurozone-affiliated holdings fell too (down $8.8 billion) to $375.9 billion in Sept.; they now account for 15.2% of overall taxable money fund holdings. Asia & Pacific related holdings inched up by $2.2 billion to $291.8 billion (11.8% of the total), while Americas related holdings jumped by $94.9 billion to $1.500 trillion (60.7% of holdings).
The Repo totals were made up of: Government Agency Repurchase Agreements (up $2.7 billion to $223.7 billion, or 9.1% of total holdings), Treasury Repurchase Agreements (up $41.4 billion to $197.8 billion, or 8.0% of assets and Other Repurchase Agreements (down $2.8 billion to $67.4 billion, or 2.7% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $26.6 billion to $214.9 billion, or 8.7% of assets), Asset Backed Commercial Paper (up $317 million to $95.2 billion, or 3.9%), and Other Commercial Paper (up $3.8 billion to $81.6 billion, or 3.3%).
The 20 largest Issuers to taxable money market funds as of Sept. 30, 2013, include the US Treasury (19.6%, $483.4 billion), Federal Home Loan Bank (8.7%, $215.7 billion), BNP Paribas (2.6%, $65.1B), Bank of Tokyo-Mitsubishi UFJ Ltd (2.5%, $62.7B), Bank of Nova Scotia (2.5%, $60.5B), Sumitomo Mitsui Banking Co (2.4%, $58.7B), JP Morgan (2.3%, $57.2B), Federal National Mortgage Association (2.3%, $56.5B), Federal Home Loan Mortgage Co (2.3%, $56.3B), Bank of America (2.2%, $54.9B), Credit Agricole (2.2%, $53.9B), Citi (2.1%, $53.8B), RBC (2.2%, $53.1B), Credit Suisse (1.9%, $46.3B), Barclays Bank (1.8%, $45.5B), Federal Reserve Bank of NY (1.8%, $44.7B), Deutsche Bank AG (1.8%, $43.8B), Bank of Montreal (1.5%, $37.6B), Wells Fargo (1.5%, $37.5B), and Toronto-Dominion Bank (1.5%, $37.3B).
The 10 largest Repo issuers (dealers) (with the amount of repo outstanding and market share among the money funds we track) include: Bank of America ($46.6B, 9.5%), Federal Reserve Bank of New York ($44.7B, 9.1%), BNP Paribas ($42.8B, 8.8%), Goldman Sachs ($29.8B, 6.1%), Barclays ($29.8B, 6.1%), Citi ($28.8B, 5.9%), Credit Agricole ($26.7B, 5.5%), RBC ($25.1B, 5.1%), Credit Suisse ($24.2B, 4.9%), and Deutsche Bank ($23.9B, 4.9%).
The 10 largest CD issuers include: Sumitomo Mitsui Banking Co ($50.8B, 9.7%), Bank of Tokyo-Mitsubishi UFJ Ltd (8.6% $44.7B, 8.6%), Bank of Nova Scotia ($36.6B, 7.0%), Bank of Montreal ($33.4B, 6.4%), Toronto-Dominion Bank ($30.3B, 5.8%), Rabobank ($21.1B, 4.0%), Mizuho Corporate Bank Ltd ($196B, 3.7%), National Australia Bank Ltd ($17.4B, 3.3%), Credit Suisse ($14.8B, 2.8%), and Canadian Imperial Bank of Commerce ($13.9B, 2.7%). The 10 largest CP issuers include: JP Morgan ($25.2B, 7.7%), Commonwealth Bank of Australia ($15.4B, 4.7%), Westpac Banking Co ($14.7B, 4.5%), General Electric ($12.3B, 3.8%), FMS Wertmanagement ($12.1B, 3.7%), Toyota ($10.8B, 3.3%), RBC ($10.3B, 3.1%), NRW.Bank ($10.1B, 3.1%), HSBC ($9.4B, 2.9%), and DnB NOR Bank ASA ($9.4B, 2.9%).
The largest increases among Issuers of money market securities (including Repo) in September were shown by: Federal Reserve Bank of New York (up $44.7B to $44.7B), Federal Home Loan Bank (up $18.8B to $215.7B), Credit Agricole (up $11.6B to $53.9B), US Treasury (up $8.0B to $483.4B), BNP Paribas (up $8.0B to $65.1B), and Rabobank (up $6.1B to $26.5B). The largest decreases among Issuers included: Deutsche Bank (down $19.8B to $43.8B), Societe Generale (down $17.4B to $31.2B), Lloyds TSB Bank Plc (down $13.1B to $12.3B), Barclays (down $9.7B to $45.5B), Swedbank AB (down $7.6B to $10.1B), and DnB NOR Bank ASA (down $7.5B to $23.5B).
The United States is still by far the largest segment of country-affiliations with 51.4%, or $1.271 trillion. Canada remained in second place (9.2%, $227.7B) ahead of France (8.6%, $212.7B). Japan was again fourth (7.3%, $181.2B) and the UK (4.9%, $122.0B) remained fifth. Sweden (3.8%, $93.3B) and Australia (3.6%, $90.0B) moved into sixth and seventh place ahead of Germany (3.3%, $80.7B) among country-affiliated securities and dealers. The Netherlands (3.0%, $73.0B) and Switzerland (2.6%, $63.5B) continued to round out the top 10. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)
As of Sept. 30, 2013, Taxable money funds held 22.2% of their assets in securities maturing Overnight, and another 13.2% maturing in 2-7 days (35.5% total in 1-7 days). Another 20.9% matures in 8-30 days, while 25.0% matures in the 31-90 day period. The next bucket, 91-180 days, holds 14.4% of taxable securities, and just 4.2% matures beyond 180 days.
Crane Data's Taxable MF Portfolio Holdings (and Money Fund Portfolio Laboratory) were updated last Wed. and Thursday, and our MFI International "offshore" Portfolio Holdings will be updated early this week (the Tax Exempt MF Holdings were released Friday). Visit our Content center to download files or visit our Portfolio Laboratory to access our "transparency" module and contact us if you'd like to see a sample of our latest Portfolio Holdings Reports or our new Weekly Money Fund Portfolio Holdings collection.
BlackRock TempFund, one of the nation's largest (over $48 billion) and oldest money market mutual funds, celebrates its 40th birthday this week, milestone that only a handful of money funds have reached. Yesterday, we interviewed Managing Director Rich Hoerner and Ellen Bockius to get some thoughts on the fund's anniversary and to congratulate them on the fund's longevity. We first asked, "When was BlackRock TempFund launched? Why was it launched? They answered, "TempFund was launched in October of 1973 to meet the needs of institutional clients, primarily bank trust clients, and was intended to be an alternative to Treasury Bills and Master notes that were the primary vehicles for cash investing at the time. Institutional investors were looking for a solution to meet their needs of safety, liquidity and yield while also achieving investment diversification."
We also queried, "Can you tell us a little bit about its history and BlackRock's history in money funds? BlackRock told us, "TempFund was launched by Provident National Bank (prior to its merger with Pittsburgh National Bank to form PNC). By 1998, BlackRock had successfully integrated all of PNC's investment management entities (equity, fixed income, and liquidity funds) into a single platform under BlackRock. Many of the professionals who are part of our current cash management team were employees of either Provident or PNC prior to becoming a part of BlackRock. Today, we have a dynamic platform that was built over the last 40 years to meet the evolving needs of our clients. We offer a broad range of solutions from money market funds to short duration products across multiple currencies."
Crane Data asked, "How have the money markets changed during this time? They responded, "The industry has experienced tremendous growth over the last forty years, and has also weathered multiple interest rate and credit cycles and extreme market events. We've seen changes in market dynamics and tremendous growth in the appreciation and use of money market funds across a wide spectrum of clients."
Finally, we asked, "What are the fund's biggest challenges today? Hoerner and Bockius said, "Obviously, regulatory reform remains the biggest headwind and challenge for the industry. We have remained constructive in this conversation, recognizing the benefits of protecting money market fund investors and the broader financial system and urging policymakers to retain the benefits of money market funds for institutional and retail investors who rely on these products for short-term investments and liquidity. We are optimistic for the future of cash investing and are committed to helping our clients navigate this new environment by introducing new ideas to meet their cash needs; perhaps some that we'll celebrate forty years from now."
The company said in its recent SEC Comment Letter, "BlackRock and its predecessor companies have been involved in the management of MMFs since 1973, and today, BlackRock manages approximately $192.6 billion (as of June 30, 2013) in Rule 2a-7 MMF assets regulated by the Commission. BlackRock also manages substantial cash management assets in bank collective funds regulated by the Office of the Comptroller of the Currency and in Undertakings for Collective Investment in Transferable Securities products regulated by the European Securities and Markets Authority. Our success in building this business came not because we always offer the highest yield; we have grown because we have earned our clients' trust through multiple interest rate cycles and a wide variety of market events."
Finally, it added, "We believe cash management is a distinct investment category, different from other fixed income strategies. We understand the importance of putting safety and liquidity first, not as a marketing message, but as the foundation of our investment philosophy. At BlackRock, we have investment, credit research and risk management personnel and processes that are dedicated to our liquidity business." As of Sept. 30, Crane Data ranks BlackRock as the 3rd largest manager of money funds globally with $244 billion and the 7th largest manager of U.S. money market funds with $146 billion. The manager merged with Barclays Global Investors in December 2009 (see our 12/2/09 News, "Merged BlackRock, BGI Form World's 3rd Largest Money Fund Manager").
The Investment Company Institute published a revised (from 2011) "Money Market Funds and Credit Ratings on U.S. Treasury Securities: Frequently Asked Questions" yesterday, which asks, "Why is the debate over of the U.S. debt ceiling and deficit relevant to money market funds? It answers, "Failure to increase the U.S. debt ceiling or address the long-term U.S. spending and fiscal imbalance could adversely affect investors, markets, and economies across the globe -- with severe consequences for interest rates, stock prices, investor confidence, and the day-to-day activities of businesses and consumers. Money market funds are required to invest only in short-term, highly liquid securities that present minimal credit risk. As of August 31, 2013, money market funds owned $831 billion in U.S. Treasury and agency securities -- and held another $452 billion in repurchase agreements collateralized by Treasuries and agencies. Because these amounts are large, it is important to understand how a Treasury default or downgrade could affect financial markets." (Note: Crane Data's Sept. 30 Money Fund Portfolio Holdings, which will be released this morning, show money funds held $483 billion in Treasury debt, with $28 billion maturing Oct. 24, $28 billion maturing 10/31 and just $10 billion maturing 11/7.)
ICI's Q&A also asks, "What would be the consequences of failure by the U.S. Congress and Administration to raise the debt ceiling before the government runs out of cash to pay all of its bills (currently estimated to be October 17, 2013)? They respond, "The U.S. Treasury "estimates that extraordinary measures will be exhausted no later than October 17" unless the statutory debt ceiling is raised from its current level of $16.7 trillion. In that event, Treasury says, "the government would have to stop, limit, or delay payments on a broad range of legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and many other commitments."
Finally, they add, "For a money market fund, what would constitute "default" in a U.S. government security? If the U.S. government fails to pay interest or principal when due on a security in a money market fund's portfolio, the security would be in default. The fund must then dispose of the security in an orderly way, unless the fund's board determines that disposing of the security would not be in the best interests of the fund and its shareholders. In deciding, the board may consider market conditions and other factors. If the security accounts for 0.5 percent or more of the fund's portfolio, the fund also must report the default to the SEC. In addition, the U.S. government's failure to pay its obligations could trigger a severe downgrade of its short-term credit rating by NRSROs. In that case, U.S. government securities may no longer be eligible securities (i.e., may no longer be rated first or second tier by at least two NRSROs), or a money market fund's board or its delegate may determine that the credit risk of those securities is no longer minimal."
Thursday at 10am, a Senate Committee will hold a hearing on the "Impact of a Default on Financial Stability and Economic Growth". ICI President Paul Stevens says in his released testimony, "We already can see early signs of these effects developing in the market, as the October 17 debt-ceiling deadline approaches. Unsure about its future ability to borrow, the Treasury Department is scaling back its auctions of bills-squeezing the supply of securities that are in high demand and undermining the predictability of Treasury issuance. Rates on the Treasury securities most at risk have risen sharply. Yields on Treasury securities maturing between October 17 and October 31 rose from around 2 basis points on September 24 to between 20 and 25 basis points on October 8."
He continues, "We saw similar rate spikes in 2011, when a previous stalemate over the debt ceiling brought the U.S. to the edge of default. In the weeks before the 2011 debt ceiling impasse was resolved, yields on maturing Treasury securities rose sharply. The rate on the Treasury bill set to mature on August 4, 2011, climbed from slightly above zero in early July to almost 30 basis points by the end of that month. Even as Congress and the White House averted a default, the confrontation reflected so badly on the nation that Standard & Poor' s felt compelled to issue its historic downgrade of the United States' AAA sovereign debt rating."
Finally, Stevens adds, "The effects of a default would quickly spill beyond the Treasury markets and into the broader economy. As noted, failure to meet interest payments or to redeem maturing Treasury securities could directly hit the finances of those who depend on Treasuries in their cash management -- individuals, businesses, nonprofit institutions, and state and local governments. These entities in turn may struggle to meet their obligations to suppliers and creditors, undermining economic activity and damaging confidence. When the asset valued by millions of investors for its "risk-free" nature suddenly assumes unanticipated risk of illiquidity or default, these investors and others will rapidly adjust their expectations -- and grow increasingly cautious. Rising rates on Treasury securities could be expected to drive up interest rates for other borrowers and increase the cost of capital for corporate issuers and state and local governments. Homebuyers hoping to price mortgages during the default period could face unpredictable swings in rates, and other variable-rate household borrowing could be affected."
Fitch Ratings says in their update, "Fitch: What a U.S. Technical Default Could Mean for Money Market Funds," "Fitch-rated U.S. money market funds (MMFs) hold an estimated $234.9 billion, or about 37% of total assets in exposures to the U.S. government via holdings of U.S. Treasury (UST) and government agency securities as well as reverse repurchase agreements (repos) that are collateralized by such securities. In addition, U.S. dollar-denominated offshore MMFs hold a further $46 billion of exposures, of which $26 billion is via repos. The U.S. Treasury has said that available funds could run out as early as October 17th, absent a debt ceiling increase. Fitch Ratings continues to believe that an agreement will ultimately be reached to end the current political impasse in order to raise the U.S. debt ceiling and avoid a 'technical' default. Nonetheless, it's worth exploring the potential ramifications for U.S. dollar-denominated MMFs should the U.S. government fail to make timely payments on some portion of its debt obligations."
They continue, "Fitch believes the overall risk to MMFs due to a U.S. default to be low. Mark-to-market declines on U.S. government exposures are probably manageable assuming any default is short lived and absent significant redemption activity. In part, this view reflects MMFs' low weighted average maturities and high amounts of short-term liquidity available to meet redemptions. Importantly, MMFs would not be required to sell U.S. Treasury securities in the event of a technical short-term default under Rule 2a-7 of the 1940 Investment Act and under Fitch's MMF rating criteria. Thus, any liquidity pressures would more likely arise from increased redemption activity. So far there is no evidence that investors are taking money out of U.S. MMFs, although this might change as the deadline to raise the debt ceiling nears. U.S. MMFs experienced net outflows of $8.5 billion last week, or roughly 0.3% of the industry's $2.694 trillion in assets under management, after mostly rising for several months".
Fitch explains, "Some of the liquidity MMFs hold, however, is in the form of maturing UST securities and/or short-term repos secured by USTs that help MMFs meet overnight and one-week liquidity requirements. Fitch-rated U.S. MMFs hold $98.4 billion of repos secured by U.S. government securities. Many MMFs rely in part on short-term repos and to a lesser extent direct U.S. Treasury securities as a source of liquidity. A material disruption of the UST-backed repo market would be a credit negative given its size, interconnectedness and importance to MMFs."
Finally, they add, "MMFs with heavy exposure to UST securities maturing in October and early November could be pressured in the face of heavy redemption activity. Fitch understands that many MMF managers have shifted out of US Treasury securities maturing in October that could be most at risk to a debt ceiling impasse. Fitch's rating criteria for MMFs would not require funds to sell UST securities that are in a short-term 'technical' default, provided that payment is expected to be received imminently, and that the MMF has sufficient liquidity to meet redemptions even when excluding the defaulted UST securities. However, a longer-term impasse could put pressure on of the ability of some MMFs to meet timely redemptions and maintain preservation of capital, consistent with Fitch's rating criteria for MMFs, which could have negative rating implications."
Yesterday, Crane Data published its latest monthly Money Fund Intelligence Family & Global Rankings, which ranks the asset totals and market share of managers of money funds in the U.S. and globally. (It's available to our Money Fund Wisdom subscribers.) The latest reports show big asset gains by the majority of major money fund complexes in September and in the 3rd quarter. Dreyfus, Fidelity and JPMorgan showed the largest gains in September, rising by $6.4 billion, $5.8 billion and $5.3 billion, respectively, while JPMorgan, Fidelity and Dreyfus also led in Q3 (rising by $19.5B, $13.7B and $11.8B). Money fund assets overall rose by $42.7 billion in September, after rising by $26.7 billion in August and $27.8 billion in July (according to our Money Fund Intelligence XLS); they rose a total of $97 billion in Q3.
Our latest domestic U.S. money fund Family Rankings show that Fidelity Investments remained the largest money fund manager with $432.7 billion, or 17.1% of all assets (up $5.8 billion in Sept., up $13.7B over 3 mos. and up $18.7B over 12 months), followed by JPMorgan's $244.8 billion, or 9.7% (up $5.3B, up $19.5B, and up $21.7B for 1-month, 3-months and 12-months, respectively). Federated Investors ranks third with $226.5 billion, or 9.0% of assets (up $4.1B, up $5.3B, and down $7.9B), Vanguard ranks fourth with $175.9 billion, or 7.0% (up $2.3B, $5.7B, and $14.5B), and Schwab ranks fifth with $163.4 billion, or 6.5% (up $1.5B, $3.2B, and $9.8B) of money fund assets.
The sixth through tenth largest U.S. managers include: Dreyfus ($162.2B, or 6.4%), BlackRock ($146.9B, or 5.8%), Goldman Sachs ($126.9B, or 5.0%), Wells Fargo ($121.4B, or 4.8%), and Morgan Stanley ($97.9B, or 3.9%). The eleventh through twentieth largest U.S. money fund managers (in order) include: SSgA, Northern, Invesco, UBS, BofA, Western Asset, DB Advisors, First American, RBC, and Franklin. Crane Data currently tracks 74 managers, down one from last month. (Hartford liquidated its money fund in September.)
Over the past year, JPMorgan shows the largest asset increase (up $21.7B, or 9.5%), followed by Fidelity (up $18.7B, or 4.5%) and Wells Fargo (up $16.9B, or 15.8%). Other big gainers since Sept. 30, 2012, include: Vanguard (up $14.5B, or 9.0%), SSgA (up $13.9B, or 20.7%), Schwab (up $9.8B, or 6.4%), Dreyfus (up $9.1B, or 6.0%), and Invesco (up $8.2B, or 14.9%). The biggest declines over 12 months include: `Federated (down $7.9B, or 3.4%), UBS (down $7.6B, or 14.2%), First American (down $3.1B, or 7.8%), and DB Advisors (down $2.9B, or 7.0%). (Note that money fund assets are very volatile month to month.)
When "offshore" money fund assets -- those domiciled in places like Dublin, Luxembourg, and the Cayman Island -- are included, the top 10 managers match the U.S. list, except for BlackRock moving up to No. 3, Goldman moving up to No. 5, and Western Asset appearing on the list at No. 9. (displacing Morgan Stanley from the Top 10). Looking at these largest Global Money Fund Manager Rankings, the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore), we show these families: Fidelity ($437.3 billion), JPMorgan ($369.4 billion), BlackRock ($244.4 billion), Federated ($236.9 billion), and Goldman ($191.0 billion). Dreyfus, Vanguard, Schwab, Western, and Wells Fargo round out the top 10. These totals include offshore US dollar funds, as well as Euro and Sterling funds converted into US dollar totals.
In other news, our October MFI and MFI XLS show net yields remained at record lows and gross yields continued to set new record lows for the month ended Sept. 30, 2013 Our Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 831), remained at a record low of 0.01% for both the 7-Day and 30-Day Yield (annualized, net) averages <b:>`_. (The Gross 7-Day Yield moved down one bps to a record low 0.14%.) Our Crane 100 Money Fund Index shows an average yield (7-Day and 30-Day) of 0.02%, also a record low, and down from 0.05% at the start of 2013. (The Gross 7- and 30-Day Yields for the Crane 100 were 0.17%.)
Our Prime Institutional MF Index yielded 0.2% (7-day), the Crane Govt Inst Index, Crane Treasury Inst, Treasury Retail, Govt Retail and Prime Retail Indexes all yielded 0.01%. The Crane Tax Exempt MF Index also yielded 0.01%. (The Gross Yields for these indexes were: Prime 0.20%, Govt 0.10%, Treasury 0.07%, and Tax Exempt 0.14% in Sept.) The Crane 100 MF Index returned on average 0.00% for 1-month, 0.01% for 3-month, 0.02% for YTD, 0.04% for 1-year, 0.05% for 3-years (annualized), 0.19% for 5-year, and 1.68% for 10-years.
With the avalanche of Comment letters on the SEC's Money Market Fund Reform Proposal following the Sept. 17 deadline, we missed this posting from the Investment Company Institute President & CEO Paul Schott Stevens. Entitled, "Getting the Facts Right on Money Market Funds," the "Viewpoint" says, "This week [Sept. 18], I testified before Congress at a hearing on the issue of money market funds and recent regulatory proposals from the Securities and Exchange Commission (SEC) that would amend the rules governing these funds. The hearing provided an excellent opportunity to continue to educate Congress on the benefits that money market funds bring to investors and to the economy as a whole. In my testimony, I emphasized the Institute's views on making sure that regulatory proposals do not upset the crucial role that money market funds play." (The House of Representatives' Financial Services Committee hosted the session, entitled, "Examining the SEC's Money Market Fund Rule Proposal".)
Stevens explains, "As has been the case consistently in the debate around money market funds, the question of these funds' recent history was raised. Unfortunately, one of my fellow panelists -- Sheila Bair, chair of the Systemic Risk Council at the Pew Charitable Trusts and formerly chair of the Federal Deposit Insurance Corporation (FDIC) -- made misleading comments in this regard. With accusations of "revisionist history," she declared that the money market fund industry was in a "panic" in 2008 and demanded a "bailout."" [Note: Bair also made several references to money funds trading at $1.00 when assets were worth "97 cents", a clear mischaracterization of how funds operate.]
He continues, "I've been in Washington long enough to know that bad history makes for bad policy. So let's correct the misleading statements and review the facts around the federal government's support of money market funds in 2008. The program, which expired in 2009, was known as Treasury Guarantee Program for Money Market Funds (TGP). In 2008, the fund industry did not ask for support for money market funds."
Stevens tells us, "The historical record, as far as ICI is concerned, is clear. During the darkest days of September 2008, the fund industry was working around the clock with government regulators as they managed a severe crisis. Though we welcomed government intervention on money markets funds, we did not ask for it. Indeed, when I spoke of this at length in a speech on October 6, 2008 -- just weeks after the failure of Lehman Brothers -- here's what I said:
"One important fact is this: Money market mutual funds did not ask for federal insurance for our product. We nonetheless welcomed the guarantee program, because Secretary Paulson regarded it as essential to get ahead of the unfolding crisis by bolstering confidence in money funds and preserving those funds' crucial role in the economy. As subsequent events have proved, his judgment was correct. But we also embrace his concept that the federal guarantee is a voluntary, temporary, emergency backstop. Indeed, there is a strong consensus that it should be nothing more. It is my hope, as I told several journalists on September 19th, that credit markets soon will return to normal and the guaranty program will never be called upon to pay a claim. The TGP never paid a claim and in fact netted a profit for American taxpayers."
He adds, "The TGP was limited and temporary, as the ICI had urged during its creation. The program served its purpose and ended, as planned, in September 2009 without a single claim. In fact, the Treasury and U.S. taxpayers received an estimated $1.2 billion in fees paid by participating money market funds."
Stevens' Viewpoint continues, "Regulators have made great strides in strengthening money market funds. As we all know, the federal government has taken extraordinary steps to address what occurred in the financial crisis. One of those steps is that Congress has created new restrictions that make it very difficult for the federal government to impose programs like the TGP."
Finally, he says, "Another is that the Securities and Exchange Commission has greatly improved the resilience of money market funds through a number of reforms adopted in 2010 -- reforms that were thoroughly tested in 2011 during market stresses caused by the standoff over the U.S. federal debt ceiling and by deteriorating conditions in eurozone debt markets. I discussed these developments at the hearing this week, but you can also learn more in an extensive paper we published on the subject earlier this year. Facts like these -- not misleading statements or charges of revisionism -- should inform the discussion around money market funds."
The October issue of Crane Data's Money Fund Intelligence was sent to subscribers on Monday morning. The latest issue of our flagship monthly newsletter features the articles: "Comments on MMF Reform Oppose Float, But Diverge," which review the 208 Comment Letters on the SEC's MMF Reform Proposal; "Fidelity's Prior Discusses Comment Letter, Future," which interviews the head of the largest money market group and reviews their feedback to the SEC; and, "Debt Ceiling & Risks to Treasury Funds, Holdings," which discusses the remote threat of a default and its possible impact on Treasury money funds and holdings. We've also updated our Money Fund Wisdom database query system with Sept. 30, 2013, performance statistics and rankings, and also sent out our MFI XLS. (MFI, MFI XLS and our Crane Index products are available to subscribers at our Content center.) Our September 30 Money Fund Portfolio Holdings are scheduled to go out late on Wednesday, Oct. 9 (with the "Reports" out on Oct. 10).
Our SEC Comment Letter piece says, "The deadline for Comments on the SEC's Money Market Fund Reform Proposal passed on September 17, and the 208 letters of substance and 1,200+ form letters overwhelmingly oppose a floating NAV for prime institutional funds (Alternative I). But opposition isn't as monolithic as previous requests for comment (by the SEC, PWG and FSOC), indicating that many are resigned to substantial changes to prime funds (and reflective of the partial nature of the proposal). The letters also in general supported the exemption of tax-exempt money funds from both alternatives, and supported the emergency liquidity fees and gates option. We review comments from the major MMF providers below."
The October issue's lead story continues, "Unsurprisingly, the majority of the comment letters came from money fund managers, investor groups, and interested parties, with a sprinkling of submissions from regulators and fringe economists. A table on page 3 shows where the 15 largest money fund managers came down on many of the major issues."
Our "profile" on Fidelity's Nancy Prior says, "This month, we again interview Fidelity Investment's Money Market Group President Nancy Prior, and ask about Fidelity's recent comment letter on the SEC's Money Market Fund Reform Proposal, as well as several other topics. (See our previous June 2012 MFI interview, "New Queen of Cash: Fidelity's Nancy Prior.") Fidelity manages over $425 billion in money fund assets, over 17.0% of the total $2.6 trillion. Our Q&A follows."
The piece asks, "What was the main thrust to your comment letter?" Prior comments, "Overall, we think that the SEC has taken the right approach, which was to narrowly tailor the reform proposals at those funds that have shown that they may be susceptible to large redemptions. `But we think in the execution of that approach, there were some areas where the SEC nailed it but also some missteps. With respect to Treasury and government money market funds, we think they got it right. Those funds have shown that they are not susceptible to runs. So we think the SEC was right to exclude those funds from reform. But where we think they really missed the mark is with respect to the municipal funds. We firmly believe that the municipal funds should not be subject to either the floating NAV or the fees and gates proposal."
The article on the Debt Ceiling & Treasury Funds explains, "With the partial government shutdown in progress, questions and concerns have surfaced over the Treasury's looming debt ceiling. While we're confident that the limit will be raised, as it was in August 2011, we wanted to address some potential risks and implications to Treasury money funds, T-bill holdings and money funds in general." See the latest issue and future "News" postings for more details, or contact us to request the latest issue.
Finally, we also wanted to thanks our sponsors, speakers and attendees from last month's Crane's European Money Fund Symposium, which was held Sept. 24-25 <b:>`_in `Dublin, Ireland. We had 100 people in total, which we believe makes our inaugural event the largest money fund conference ever held outside the U.S. We plan on having next year's European MF Symposium in London, Sept. 23-24. Our next U.S. event is Crane's Money Fund University, which will take place Jan. 23-24 in Providence, R.I., and which will contain a heavy focus on money fund regulations. Our next big show, Crane's Money Fund Symposium, will take place June 23-25, 2014, in Boston. (Watch for the agenda later this month.)
Though many have moved on to speculating about a possible technical default of Treasury debt in late October, we continue to mine the Comment letters on the SEC's Money Market Fund Reform Proposals. One of the major fund providers' missives that we haven't quoted yet is from F. William McNabb III, Chairman and Chief Executive Officer, Vanguard. (McNabb was also just elected the new Chairman of the Investment Company Institute; see our "People" news.) McNabb writes, "We appreciate the opportunity to provide our comments to the Securities and Exchange Commission (the "Commission" or "SEC") on the thoughtful alternatives for money market mutual fund reform set forth in the Proposal. Vanguard is an SEC-registered investment adviser that has managed money market mutual funds ("MMFs") since 1981. On behalf of our shareholders, who currently invest approximately $205 billion in our MMFs, we welcome the opportunity to work with the Commission to strengthen the money market industry for the benefit and further protection of investors."
He continues, "Over the past five years, Vanguard has been actively involved in researching and evaluating potential MMF reform options. We were strong proponents of the SEC's amendments to Rule 2a-7 that were implemented in 2010. We believe these changes positioned many MMFs to be self-provisioning for liquidity, thereby reducing the likelihood that a future systemic market disruption would impede the ability of the funds to satisfy shareholder redemptions. We believe regulators could do more to strengthen money markets for investors and have previously expressed our support for solutions that were narrowly tailored to the funds most likely to experience destabilizing redemptions. We encouraged regulators to seek a reform solution that would continue to allow investors, particularly retail investors, the discretion to choose MMFs for their cash management needs."
Vanguard tells the SEC, "As the financial crisis of 2008 demonstrated, institutional prime MMFs have an increased risk of experiencing disruptive shareholder redemptions, which can impair a fund's liquidity and its ability to maintain a stable NAV. The primary reason for this increased risk is the composition of an institutional prime MMF's shareholder base. An institutional prime MMF is likely to have a concentrated shareholder base of professional investors who own a significant portion of the fund. When these shareholders redeem their shares at the same time, a fund's liquidity can be severely impaired and its ability to maintain a stable NAV may be compromised."
They explain, "We believe the SEC's Proposal appropriately identifies institutional prime MMFs as the funds most likely to contribute to widespread financial market stress, as these funds have proven to be more susceptible to significant redemptions. The Proposal also acknowledges that retail prime MMFs did not experience disruptive redemptions during the financial crisis of 2008 and, therefore, recommends that such funds retain the stable NAV. This finding is consistent with our experience in managing retail MMFs over the past 32 years -- retail investors do not cause MMFs to experience sudden and disruptive redemptions. For these reasons, Vanguard encourages the Commission to adopt a floating NAV for institutional prime MMFs ("Option I")."
McNabb says, "Part I of this letter provides a summary of our comments. Part II discusses our detailed comments on the proposed structural reforms for MMFs. Part III provides the reasons to exclude municipal (tax-exempt) MMFs from further structural reforms. Part IV discusses our general support for many of the proposed disclosure and diversification reforms for MMFs, but cautions against certain changes that would not be in the best interest of investors."
The letter's "Executive Summary" states, "We have summarized our key points below, each of which is discussed in greater detail in Parts II-IV of this letter: 1. We support Option I to require floating NAVs for institutional prime MMFs and stable NAVs for retail prime MMFs. Option I provides an appropriate balance between targeting the funds that are most likely to experience disruptive redemptions and preserving prime MMFs for the retail investor. In our experience, the stable NAV is a very highly valued feature for those retail investors who continue to invest in retail MMFs to manage their cash, pay their bills, and diversify their portfolios, despite negligible yields."
It continues, "2. We believe that the daily redemption limit for investors in a stable NAV prime MMF should be raised from $1 million to $3 million. If the daily redemption limit is not raised, we believe certain exceptions would be necessary to make the $1 million daily redemption limit less disruptive to ordinary retail shareholder activity. Regardless of the dollar limit on redemptions, however, we believe redemptions in retirement plan accounts and other tax-deferred savings accounts should be deemed "retail" activity."
Vanguard adds, "3. We urge the SEC to treat municipal MMFs like government and Treasury MMFs and exclude such funds from further structural reforms. We believe that the Proposal correctly concludes that government and Treasury MMFs do not require structural reforms. These funds are unlikely to have disruptive redemptions that could contribute to wider financial stress, given the higher credit quality and liquidity of the securities held by these funds. We believe the Proposal mistakenly concludes, however, that municipal MMFs warrant the same reforms as prime MMFs, without any evidence that such funds have a history of destabilizing, widespread redemptions. We believe the Proposal is significantly flawed for its failure to show how shareholder activity in municipal MMFs may result in disruptive redemptions that impair a fund's liquidity, or transmit systemic risk."
They write, "4. We do not support the combination of Option I with the additional structural reforms of liquidity fees and redemption gates ("Option II"), nor do we support having both structural reforms available. We believe combined structural reforms are unnecessary for the SEC to achieve its objective of preventing disruptive redemptions and could serve to make MMFs an unattractive cash management vehicle for investors, particularly those who hold MMFs in a retirement plan or other tax-deferred savings account. We believe having both structural reforms available may be confusing for investors and could promote regulatory arbitrage."
Finally, Vanguard says, "5. We largely support the proposed disclosure and diversification reforms; however, we strongly oppose the proposal to eliminate a fund's ability to hold up to 25% of its assets in securities subject to a guarantee or demand feature from a single institution (the "25% basket"). We support disclosure of a fund's liquidity levels and market-value NAV, which can help investors better understand the liquidity and stability of their MMFs. We also support the proposal to require fund advisors to aggregate exposures to affiliated credit sources, as it is consistent with the spirit of Rule 2a-7's diversification requirements. We oppose, however, eliminating the 25% basket, which can be useful for municipal MMFs as it provides the flexibility to obtain greater exposure to a strong credit source in times when high credit quality may be scarce. Eliminating such flexibility would be an SEC mandate for funds to hold lower-quality securities."
We continue our excerpts from recent "Comments on Proposed Rule: Money Market Fund Reform; Amendments to Form PF," today citing a letter from Phillip S. Gillespie, Executive Vice President and General Counsel, State Street Global Advisors. SSgA writes, "State Street Global Advisors ("SSgA") supports the efforts of the Securities and Exchange Commission ("SEC" or "Commission") to strengthen the resiliency and transparency of the money market fund industry. Money market funds are essential participants in the capital markets, providing retail investors and institutions with a flexible cash investment vehicle with a higher yield than many other cash investment alternatives. In addition, money market funds play an important role in providing both capital and liquidity to large and small businesses as well as state and local governments. From a regulatory standpoint, money market funds have proven to be remarkably successful in preserving a stable net asset value ("NAV") for investors while providing liquidity and reasonable investment returns."
They explain, "SSgA welcomes the opportunity to provide comments regarding the Commission's proposals to amend Rule 2a-7 and other rules that regulate money market funds under the Investment Company Act of 1940, as amended (the "1940 Act"). SSgA makes the following observations and recommendations, which are discussed in more detail below: SSgA believes that the SEC is the appropriate regulatory body to regulate money market funds. SSgA has been, and continues to be, opposed to the adoption of a floating net asset value for any money market fund. SSgA opposes the adoption of liquidity restrictions on its clients. However, SSgA concedes that a fees and gates approach is more likely than other proposals to halt a "run" on a money market fund. SSgA strongly opposes any proposal that would combine a floating NAV with a fees and gates approach. SSgA supports the efforts of the SEC to increase transparency and strengthen the resiliency of the money market fund industry, but urges the SEC to consider the substantial administrative, operational and expense burdens of its proposed amendments."
The comment continues, "SSgA encourages the Commission to strictly limit any potential reforms to those which directly address the issues which the Commission is attempting to solve. We further believe that the Commission must evaluate any potential reforms and their purported benefits in light of all of the costs associated with the implementation of such reforms. In addition to the monetary expenses, we believe that the Commission should also carefully consider the administrative and operational burdens, unintended consequences, negative externalities, and even the potential degradation of the attractiveness of the product, as part of its cost-benefit analysis."
It adds, "SSgA supports the efforts of the Commission to retain its regulatory authority over money market funds. SSgA believes that, as registered investment companies, money market funds are appropriately regulated by the SEC. With over forty years of overwhelmingly successful regulation of money market funds, we believe that no other regulatory body has the institutional knowledge and experience necessary to maintain regulatory jurisdiction over this unique investment option."
On the Floating NAV, they tell us, "SSgA has been, and continues to be, opposed to the adoption of a floating net asset value for any money market fund. We have previously set forth our views on the importance of the stable NAV to money market funds, and our opposition to a floating NAV for money market funds, in our 2009 SSgA Comment Letter. We will incorporate by reference those portions of that letter herein, rather than repeat them here, and simply note our continued opposition to the adoption of a mandatory floating net asset value for money market funds. We will, however, reiterate our view that we do not believe that a floating NAV for money market funds will effectively solve for the issues that the Commission is attempting to address. We believe that any regulatory action that the Commission would seek to implement should be narrowly tailored to accomplish a specific objective. If the Commission is seeking to mitigate runs on money market funds, SSgA does not believe that the adoption of a floating NAV would be an effective tool in preventing a run on a money market fund in times of financial stress. Recent history indicates that a floating net asset value was not enough to halt significant runs on European money market funds."
SSgA says, "Even setting aside our philosophical opposition to a floating NAV, there still remain significant practical impediments to the adoption of a floating NAV for money market funds. Substantial and very real tax, accounting and operational issues would arise, and to date have yet to be adequately addressed. While the Commission has indicated that its staff has had discussions with the staff of the Internal Revenue Service and Treasury Department with respect to certain of the tax complications which could result from a floating NAV, there did not appear to be any finality or certainty to those discussions. We believe that absent formal declarations from the tax authorities permitting accommodations relating to the tax complications, a floating NAV for money market funds is not a viable option. We echo this view as it relates to the accounting implications of a floating NAV. An indication that the Commission believes that a floating NAV money market fund would meet the definition of "cash equivalent," while useful, is not likely to be persuasive."
They add, "While we continue to oppose the adoption of a floating NAV for any money market funds, should the SEC ultimately elect to adopt such reforms, SSgA has a number of observations and recommendations: SSgA agrees that the scope of a floating NAV reform should be strictly limited to prime money market funds. We strongly support the continuance of the stable NAV paradigm for all non-prime money market funds, including tax-exempt institutional money market funds. We believe that there is little value, from a market stability perspective, derived from expanding the scope of floating NAV reform beyond prime money market funds."
Finally, SSgA writes, "We agree that the scope should be limited to those holders of prime money market funds who are expected to transact at significantly high asset amounts. However, we believe that the current proposal of $1 million in a single business day as a threshold is not appropriate. In our view, it is doubtful that fund withdrawals at the $1 million level across even multiple investor accounts would be sufficient to result in instability in the money markets given the daily transaction volume in money market instruments. We recommend that the Commission consider a substantially higher threshold for daily transactions to delineate between a floating net asset value money market fund and a stable net asset value money market fund. We believe that $5 million is a more appropriate threshold."
Even with the Government shutdown, Comments continue to be posted on the SEC's Money Market Fund Reform Proposal. While we'll never be able to cover them all, we continue digging into our pile of reading.... The latest featured comment letter is from Dechert LLP; we excerpt selected sections from this posting. They write, "We applaud the Commission for the obvious care and thoughtfulness that went into the preparation of the comprehensive Proposing Release. Although we strongly support the Commission's goal of improving and strengthening the regulation of money funds, we offer these comments to address certain areas where we believe the Commission either should provide more guidance to industry participants or should modify or reconsider its approach."
Dechert says, "The Commission requested comment on whether money funds that invest primarily in municipal securities ("municipal money funds") should be exempted from the floating NAV requirement of Alternative 1 and on the accuracy of the premise that municipal funds would be able to qualify for the retail exemption. We understand that, for many municipal money funds, a $1 million daily redemption limit would be unworkable. In addition, given the lack of evidence of potential systemic harm from municipal money funds, as well as the fact that those funds did not experience problematic redemption levels during the 2008 financial crisis, we urge the Commission to provide a separate exemption from the floating NAV requirement for municipal money funds."
The letter also comments, "We urge the Commission to consider the effect of the Proposing Release on unregistered money funds that currently conform to the requirements of Rule 12d1-1. These unregistered money funds serve as valuable cash management vehicles for many registered investment companies. Through Rule 12d1-1, the Commission has provided registered investment companies with the ability to invest in unregistered money funds that comply with Rule 2a-7. However, some aspects of the proposed amendments to Rule 2a-7 are ill-suited for these unregistered money funds. Accordingly, we ask that the Commission specify in the final rule that certain provisions of the amended rule are not applicable to unregistered money funds that serve as cash management vehicles for registered investment companies."
Dechert explains, "The Proposing Release states that money funds that have both institutional and retail share classes (or both institutional and retail shareholders in a single class of shares) would need to reorganize into separate money funds -- a retail money fund and an institutional money fund -- in order to rely on the retail money fund exemption under Alternative 1. The Proposing Release further discusses the costs associated with such a reorganization, including the costs that would be necessary to prepare appropriate organizational documents and costs incurred by the fund's board of directors to approve such documents. However, the Proposing Release does not discuss the potential costs of obtaining shareholder approval to the extent that a money fund's charter documents and/or applicable state law would require shareholder approval to effect a reorganization."
They continue, "The Proposing Release acknowledges a concern that a money fund with a floating NAV may not be considered to be a "cash equivalent" for accounting purposes. The Commission stated, however, that it believes that generally floating NAV money funds will still qualify as cash equivalents. Notwithstanding this statement, however, we are concerned that this may not be the case given the possible variation in value that could result from the imposition of a floating NAV, and the resulting possibility that money funds could be re-categorized as "investments" rather than "cash equivalents" for accounting purposes. In the event that the Commission decides to adopt Alternative 1, the Commission or the FASB should issue guidance establishing that a floating NAV money fund would be classified as a cash equivalent. In addition, the Commission should make it clear that a money fund that has a floating NAV would continue to be considered a "cash item" for purposes of the definition of "investment company" in Section 3(a)(1)(C) of the 1940 Act, which excludes cash items from an issuer's total assets in measuring whether the issuer has more than 40% of its total assets in "investment securities" as defined in Section 3(a)(2). The Commission Staff has long accepted the view that money fund shares should be considered to be "cash items." Failure to continue this treatment would result in money fund shares being considered to be "investment securities.""
Dechert also comments, "Both proposed Alternatives may conflict with current money fund organizational documents by requiring that limitations be placed on redemptions. Under Alternative 1, in order to qualify as a retail money fund, a fund would be required to limit daily redemptions to no more than $1 million a day for any shareholder. Under Alternative 2, the Board would have the right to suspend redemptions. Currently, money fund organizational documents may not provide for such limitations. In fact, a money fund's governing documents may contemplate that a shareholder has an absolute right to redeem any or all shares of the fund that he or she holds. The Proposing Release does not address this potential conflict. In the absence of clarity from the Commission, the organizational documents would have to be amended, which would be time consuming and costly, potentially requiring shareholder approval. We suggest that the Commission consider and address these issues and costs before adopting the Alternatives."
They also say, "If the Commission moves forward with the proposed amendments to Form N-MFP and the filing requirements for that form, we strongly suggest that the period of time between the end of the month and the due date for the filing be lengthened to allow additional time for the accuracy of the information included in the filing to be verified. The proposals would both increase the amount of information required to be included on Form N-MFP and make the Form N-MFP information publicly available immediately upon filing. Based on our experience, we believe that the current 60-day delay has served to allow money funds to conduct a more thorough review of their Form N-MFP filings to confirm their accuracy and file any amendments to correct data before it is made available to the public. Without the 60-day delay in publication, there would be a greater likelihood of human error, resulting in inaccurate data being included in public information."
Dechert tells us, "In addition to the elimination of the 60-day delay, the Commission proposed structural, reporting and clarifying changes to Form N-MFP. The proposed reporting requirements would include: (i) weekly reporting of NAV; (ii) new information with respect to each portfolio holding; (iii) disclosure about the amount of cash the money fund holds; (iv) the fund's daily and weekly liquid assets; (v) whether a portfolio security is considered a daily or weekly liquid asset; (vi) whether any person paid for or waived all or part of the fund's operating expenses or management fees; and (vii) the total percentage of shares outstanding held by the 20 largest shareholders of record. Given the amount and type of new information that would be required to be provided, we believe that the five business day period for filing after the month end is too short. We suggest that this period be lengthened to allow money funds additional time to ensure the accuracy of their filings, particularly if the information filed will be publicly available upon filing."
Finally, Dechert adds, "In the Proposing Release, the Commission asked whether money funds should be required to make Form N-MFP filings on a weekly basis. We strongly oppose requiring money funds to make Form N-MFP filings weekly or more frequently than monthly. The preparation of Form N-MFP filings requires a considerable effort each month by money fund sponsors and service providers to collect, format and verify the accuracy of potentially thousands of portfolio positions for multiple funds. Increasing the frequency of these filings would multiply this burden, increasing fund costs for minimal benefit. We also note the potential for human error discussed above would be multiplied if more frequent filings are required."
Yesterday, Moody's Investors Service published a piece entitled, "Fed's New Overnight Reverse Repo Facility Offers Supply Benefits to US Money Market Funds," which says, "On Monday, the Federal Reserve Bank of New York (FRBNY) initiated a new overnight fixed-rate reverse repo facility in an effort to provide the US Federal Reserve (Fed) with greater control over short-term rates. The new facility will significantly increase the supply of high-quality liquid assets available in the market, a credit positive for US money market funds and particularly the 94 money market funds eligible to participate in the facility."
V.P. and Senior Analyst Rory Callagy writes, "Under the new facility, a wide range of counterparties are eligible to lend cash to the Fed on an overnight basis, with the loans collateralized by US Treasury securities held in the Fed's $3.4 trillion System Open Market Account (SOMA) portfolio. The Fed set the initial rate at which it is willing to borrow at one basis point, but indicated that this rate could move up to as high as five basis points. Facility participants will initially be limited to maximum loans of $500 million with the potential for that limit to increase to $1 billion over the life of the facility. In addition to the 94 eligible money market funds, the remaining participants include six government-sponsored entities, 18 banks and the 21 primary broker-dealers. The Fed expects the facility to conduct overnight operations through January 2014."
He explains, "The liquidity and credit profiles of money market funds stand to benefit from an increase in the supply of high-quality short-term assets, such as US Treasury and agency securities, at a time when these assets are scarce owing to high demand. The facility will be particularly beneficial as regulatory-driven bank deleveraging has reduced the level of short-term broker dealer repos available to money market funds. Greater supply of high-quality short-term assets will benefit all US money market funds, but the 94 eligible money market funds will benefit most, as they are the only ones eligible to access reverse repos with the Fed."
Finally, Moody's adds, "Another benefit to money market funds is that the reverse repo facility will tend to set a floor on money market rates, reducing the risk of increased waivers of money market fund fees. Investors are not likely to accept lower overnight lending rates than the benchmark rate paid by the Fed. That rate backstop will help money market fund managers, who have struggled to generate returns in a low-yield environment, and continue to waive management fees in order to deliver a positive net yield. US money market funds have waived $18 billion in fees over the last four years, including $4.8 billion in 2012. The Fed's new facility is likely to provide fee pressure relief over time as the Fed increases its reverse repo overnight borrowing rate."
In other news, the U.S. Treasury's Office of Financial Research (OFR) released a report on "Asset Management and Financial Stability" which says, "The OFR delivered this report, Asset Management and Financial Stability, to the Financial Stability Oversight Council (Council) on ways that activities in the asset management industry could pose risks to the financial stability of the United States by creating, amplifying, or transmitting stress through the financial system. The OFR studied the activities of asset management firms and funds at the request of the Council. In developing the report, the OFR staff reviewed existing research, analyzed industry data, interviewed market participants, and consulted extensively with Council member agencies."
It explains, "This report provides a brief overview of the asset management industry and an analysis of how asset management firms and the activities in which they engage can introduce vulnerabilities that could pose, amplify, or transmit threats to financial stability. The Financial Stability Oversight Council (the Council) decided to study the activities of asset management firms to better inform its analysis of whether -- and how -- to consider such firms for enhanced prudential standards and supervision under Section 113 of the Dodd-Frank Act. The Council asked the Office of Financial Research (OFR), in collaboration with Council members, to provide data and analysis to inform this consideration. This study responds to that request by analyzing industry activities, describing the factors that make the industry and individual firms vulnerable to financial shocks, and considering the channels through which the industry could transmit risks across financial markets."
Finally, the introduction says, "The report does not focus on particular risks posed by money market funds. In November 2012, the Council released a detailed analysis of these funds and their risks, and the Securities and Exchange Commission (SEC) recently proposed additional reforms. In addition, the activities and risks posed by hedge funds, private equity, and other private funds are not addressed in detail. Additional analysis will be conducted in conjunction with further analysis of data that these funds have begun to file on Form PF. The OFR, SEC, and Commodity Futures Trading Commission (CFTC) are currently evaluating these data for monitoring purposes."