​

Below, we reprint the second half of our article, "Goldman'​s Olivo: Money in Motion; Short Opportunities," which originally appeared in the May issue of our new Bond Fund Intelligence publication. (​We interviewed Goldman Sachs Asset Management'​s John Olivo. See yesterday'​s "​News" for Part I.) BFI: Can you tell us more about the short duration portfolios? Olivo: In finding product for our portfolios, we have noticed that most issuers have had a preference to issue longer duration bonds over the last few years -- that'​s simply a reflection of how low rate have gotten. But you still do see a meaningful amount of issuance in the 3- and the 5-​year sectors, so that is generally the area where most short duration funds will invest, specifically in the credit markets. (Note: We also wanted to remind those planning on attending Crane'​s Money Fund Symposium June 24-​26 in Minneapolis to make hotel reservations by today if you haven'​t already; our discounted room rate expires today!)

When you move out to the 3- and 5-​year part of the curve, one of the benefits you receive is much broader issuer diversification. You see the industrials issue a meaningful amount of supply in that particular part of the yield curve. Unlike a money market fund, where the credit allocation is primarily made up of banks and asset backed commercial paper, you get a much broader set of issuers in the 3- and 5-​year space. There is a meaningful amount of industrials in the high quality "​BBB" space. That said GSAM also manages strategies that focus more on "​A" and above. We are still able to get a broad list of diversified issuers, but it'​s slightly more challenging.

BFI: What about strategies in separate accounts? Olivo: In the short duration separate account space, the defining characteristic for clients is the ability to customize their investment strategy. Many investors need to tailor their strategy specifically to the type of risk they want to own. A large part of our clientele consists of large multinational corporations whose cash is held "​offshore." Given the current tax rules, the money is considered trapped -- it'​s subject to a large tax penalty if it were brought back onshore. With the high price of liquidity, many multinationals do not need overnight liquidity with their offshore cash. That said, they do not want the volatility associated with a longer duration strategy. Thus, many invest in a one to three year duration strategy, which equates to an overall duration of approximately 2 years. This affords managers greater flexibility in the credit and securitized sectors as well as the ability to create a diversified multi-​sector portfolio.

BFI: How is the regulatory environment impacting your strategy? Olivo: We have yet to see a meaningful impact to our strategy due to money market reform. We do feel fairly confident that regulation will put money in motion and create opportunity in our space.

BFI: What is your outlook for rates? Olivo: It'​s difficult to draw a lot of conclusions from prior Fed tightening cycles because most expect this one to be quite different. Our call is for the Fed to begin raising rates in September, starting a tightening cycle where you could see 25 basis point hikes every other meeting. We believe the ultimate place the base rate reaches is likely to be data driven. Clearly inflation will be the biggest risk toward the Fed maintaining tightening or pushing out the start of the tightening cycle.

In terms of how short term investors are going to react, it'​s challenging to forecast that. You have a number of external factors weighing on the fixed income market -- there'​s the strength of the dollar, the price of oil, geopolitical events, or just the relative attractiveness of the US Treasury curve vs. other interest rate curves globally. It'​s difficult to forecast how the curve is going to react if the Fed begins raising rates with some of these external factors at play. In terms of asset volatility, we think that the short duration strategies should continue to be attractive given their ability to price in future Fed interest rate hikes relatively quickly. We'​re optimistic about these portfolios continuing to do well in a rising rate environment.

BFI: What do you think about the future of ultra short bond funds? Olivo: The changes that we'​re seeing on the front end are forcing liquidity investors to rethink their strategy. GSAM believes short duration strategies will continue to be a big part of an investor’​s cash management solution. (​See our latest BFI for the full interview.)

Finally, we again wanted to remind those planning on attending our Crane'​s Money Fund Symposium next month (June 24-​26) at the Minneapolis Hilton to please make your hotel reservations today and register soon! Our discounted hotel rate expires today and we expect the hotel to be sold out shortly. (​Visit here to make Hotel reservations and here for the conference agenda.) See you next month in Minneapolis!

​

The May issue of our new Bond Fund Intelligence publication features Goldman Sachs Asset Management'​s John Olivo, head of GSAM'​s short duration strategies within the firm'​s Global Liquidity Management group. A GSAM veteran of nearly 20 years, John is responsible for overseeing the management of approximately $​45 billion in short duration strategies. Our discussion covers the challenges of a low-​yield environment, the opportunities for short duration strategies going forward, product development and more. Below, we rerun the first half of the Q&​A that first appeared in the latest BFI.

BFI: How long have you been running short term bond funds? Olivo: It'​s been almost 25 years since we launched our first short duration mutual fund, the Short Duration Government Fund. Today, we offer a range of innovative strategies and support our clients with deep insight, robust risk management and an extensive liquidity management platform. As one of our flagship products, we believe the Short Duration Government Fund offers a very clear illustration of all these features and of the strength of our platform overall. In addition to our funds, GSAM has been running separately managed accounts (​SMAs) in the short duration space for more than two decades.

BFI: Are you looking at launching new products? Olivo: GSAM continually reviews its short duration product suite. Over the years, we have adapted our offerings according to investor demand. We'​ve also sought out product gaps which we think we can fill. In both cases, GSAM'​s goal has been to provide the right solutions for clients, and to strive to meet investor needs in every type of environment. For example, GSAM recently launched an ultra-​short duration mutual fund in preparation for money market fund regulatory reform. That was a case where both investor demand and changes in the marketplace convinced us to act.

We also run short duration strategies which derive their primary sources of alpha in innovative ways -- for instance, from a variety of sectors, specifically corporate or securitized products, and in multiple currencies. That was a case of meeting client needs. Another example is the High Quality Floating Rate Fund. This is one of the few floating rate funds that does not take any credit risk, focusing primarily on floating rate securitized products. GSAM believes this approach will resonate with investors in a rising rate environment.

BFI: Any plans for ETFs? Olivo: ETFs have seen explosive growth, and we think they are one of the more innovative product types to come onto the scene the last couple of years. We are always watching the short duration and money market space across product types. At this point, however, we have yet to launch anything.

BFI: What is the biggest challenge for short duration funds today? Olivo: Achieving yield continues to be the major challenge. As you know, today'​s low interest rate environment is a persistent, pervasive feature of the market. Short duration mutual funds do offer some flexibility as they can invest in longer dated securities and hedge away the unwanted duration risk, but our strategies are subject to the same interest-​rate constraints which face every investor. What'​s more, the funds invest primarily in high quality, short duration assets, which aren'​t known for their high yields. As a result, offering an attractive yield has been the biggest issue for the entire short duration universe.

BFI: How do short duration investment strategies differ from money funds? Olivo: Generally, there'​s enough differentiation between short duration funds and money market funds. The duration on some of the short duration strategies are shorter than a year, but you'​re buying more traditional fixed income securities. For example, in the High Quality Floating Rate fund, we are purchasing longer duration floating rate products in both the agency mortgage and asset backed securities area. In the Enhanced Income fund, we are purchasing high quality corporates -- with a final maturity no greater than 5 years. That is the primary source of excess return in that strategy. Therefore, there is enough differentiation that you are not crossing over into the 2a-​7 world very often. (​Watch for the second half of our interview tomorrow, or contact us for the latest issue of our Bond Fund Intelligence.)

​

In April, First American Funds announced their plans not to impose gates or fees on its government money market funds once SEC reforms go into effect in 2016, as we reported in our April 1 "​News," "First American Funds Says No Fees and Gates; Plotnik on RRP." In their latest comment, entitled, "U.​S. Bancorp Asset Management Discusses Plans for First American Funds," Lou Martine, Senior Managing Director, Head of Distribution at US Bancorp Asset Management, elaborated further on the firm'​s post-​reform plans, which include the possibility of new products such as 60-​day maximum maturity funds. First American is the 14th largest US MMF manager with $​41.​3 billion in MMF assets. (​They are also a Platinum sponsor of next month'​s Minneapolis-​based Crane'​s Money Fund Symposium.) Also, we report on Amundi'​s decision to activate the Reverse Distribution mechanism for its E3.​0 billion Money Markets Funds Short Term Euro fund.

Writes Martine, "U.​S. Bancorp Asset Management, Inc. is fully committed to being a leading provider of short-​term cash management solutions. As the investment advisor to the First American Funds, we are working diligently to make certain the funds will be in compliance with the money market fund reforms announced by the Securities and Exchange Commission (​SEC) last summer. We also are considering several additions to our ultimate product line to ensure that we remain positioned to offer investment products and solutions to meet investors' short-​term cash investment needs."

He explains, "​To that end, we have had in-​depth discussions with our clients and intermediaries to determine their needs and concerns in light of the reforms. As a result of these discussions -- as well as additional due diligence and the analysis of additional SEC guidance -- we are currently considering the following changes to the First American Funds line-​up. Importantly, we note that our plans may change between now and October 2016 and that any such plans are subject to the approval of the First American Funds' Board of Directors."

First he discussed the First American Prime Obligations Fund. He writes, "​The SEC made clear in its release that fund families choosing to offer a retail prime fund with a stable NAV will need to have policies and procedures reasonably designed to limit all beneficial holders to natural persons. We currently plan to offer both an institutional prime fund with a floating NAV and a retail prime fund with a stable NAV to meet the needs of current and future clients. Both the retail and institutional funds would offer same day liquidity."

The comment continues, "A paramount goal in the management of our institutional prime fund would be to seek to minimize variations in NAV per share, under the umbrella of our current management philosophy of principal preservation, liquidity and risk-​adjusted yield. Note that the earliest we would start to float the institutional fund'​s NAV would be late third quarter 2016. We also continue to evaluate the need for intra-​day NAV calculation(​s) for our institutional prime fund. In doing so, we are taking into primary consideration our clients' liquidity and settlement needs, while being considerate of fund expenses and other operational factors."

Next Martine commented on the First American Tax Free Obligations Fund. "​The requirements for tax free funds under the new rules are the same as for prime funds. We have similar plans to offer both an institutional tax free fund and a retail tax free fund, both of which would offer same day liquidity. The retail tax free fund would remain a stable NAV fund, while the institutional tax free fund would have a floating NAV. Once again, the primary goal in the management of our institutional tax free fund would be to seek to minimize variations in NAV per share, while keeping true to our core philosophy of principal preservation, liquidity and risk-​adjusted yield. Similar to our institutional prime fund, the earliest we would start to float the NAV on the institutional tax free fund would be late third quarter 2016."

He also discussed the First American Government Obligations, Treasury Obligations, and U.​S. Treasury Money Market funds. "​As previously announced, the First American Government Obligations Fund, Treasury Obligations Fund and U.​S. Treasury Money Market Fund (​collectively, the Government Funds) have no intention to impose redemption gates and liquidity fees. In addition, as permitted under the new rules, our Government Funds will remain stable NAV funds, pricing and transacting at $​1.​00. Our Government Funds have already been operating in compliance with the requirement that, effective October 2016, government money market funds hold at least 99.​5% of their total assets in cash, U.​S. government securities, and/​or repurchase agreements that are collateralized fully by U.​S. government securities."

Further, Martine tells us about New Funds Under Consideration. "We are exploring the possibility of offering other prime products for institutional use, such as a 60-​day maximum maturity fund, which would typically have the ability to use amortized cost to value individual portfolio securities and thus further lower the risk of NAV variability. We are also considering private funds for qualified institutional investors, which would be organized as stable NAV funds and be exempt from redemption gates and liquidity fees. Additionally, an institutional tax free fund wholly invested in 1- and 7-​day variable rate demand notes -- with the goal of further limiting the probability of variations in NAV and the imposition of liquidity fees and redemption gates -- is under consideration. As we undertake further dialogue with clients and intermediaries, we will continue to evaluate these and other cash management vehicles that could prove beneficial to our current and future clients."

He concludes, "The new rules affecting money market funds will meaningfully change the nature of prime and tax free money market funds. However, as with all things, change brings opportunity. We remain committed to providing the best cash management products and strategies to our clients, be they through First American money market funds, customized separately-​managed accounts or yet-​to-​be-​developed products and strategies. In that vein, we offer the above discussion of our plans for the benefit of our current and future clients. As our plans solidify, you can expect further communication from us."

In other news, Amundi Asset Management issued a bulletin to its investors saying it would activate the Reverse Distribution mechanism on its E3.​0 billion Amundi MM Short Term Euro Fund. It says, "​The euro-​denominated Money Market management has been facing challenging times given the ultra-​low rates environment. In response to concerns regarding the threat of deflation and the weakening of growth momentum in Eurozone, the European Central Bank which already cut its Key Rates to record lows in 2014, has launched its expanded asset purchase program (​or QE) in March 2015. Those factors are maintaining the short-​term rates close to their historical lows and push the Eonia further into negative territory. In order to maintain a stable net asset value of Amundi Money Markets Funds Short Term Euro ("​Constant NAV" type of shares only), in the best interests of shareholders, the Board of Directors of the fund has decided to activate -- when necessary -- the Reverse Distribution mechanism as of 2015 June 8."

​

The May issue of the Association for Financial Professionals' AFP Exchange features the story, "How New MMF Rules May Impact Delta'​s Cash Portfolio," a Q&​A with Barbara Quiroga, director of cash operations for Delta Air Lines. AFP asks, "What potential impact do you see the new regulations having on your cash portfolio at Delta?" Quiroga answers, "Delta has relied heavily on MMFs for its operational daily cash investments. We have already seen some funds closing/​selling their funds (​Reich & Tang) or changing their strategy (​Fidelity) that had an impact on our operational cash investments. Delta will have to assess if prime MMFs will still be the optimal investment vehicle for operational cash after all regulatory changes are implemented and we have a better understanding of how the daily investments or redemptions will work." We also preview this week'​s New York Cash Exchange conference below, which features a number of sessions on cash investments, including our Peter Crane'​s "Money Fund Rates & Regulations Roundtable," which takes place Wednesday, June 27 at 9:​00am at the New York Hilton.

The AFP interview with Delta asks, "Do you think these potential changes will cause you to make modifications to your investment policy? Quiroga says, "​It might. As of now we do not foresee a need to change the investment policy but if new investment vehicles pop up then we will have to make sure we incorporate them in our investment policy. Delta modified its investment policy in 2014 in anticipation of the regulatory changes to make sure we had the flexibility to segregate our cash in buckets. This allowed us to segregate part of our cash into separately managed accounts with a more strategic short-​term duration view and reduce the investments in MMFs."

The piece also asks, "Are you able to bucket your cash to differentiate between daily operating, core and longer term strategic cash? Where -- what bucket -- do you see the biggest impact with the new regulations?" Quiroga responds, "We do bucket our cash into two main buckets: separately managed accounts for short-​term duration strategies and our operational daily cash. For Delta, the biggest impact will be on the daily operational cash as we rely heavily on MMFs and bank deposits. With regulatory changes affecting how banks view their balance sheet we find that some banks welcome the cash deposits but others don'​t. On MMFs we are on a '​wait-​and-​see' mode right now but we are concerned about the mechanics of the ins and outs of money to the MMFs as well as the impact of gates and fees. Liquidity and flexibility are important for the daily cash and we need to make sure that the mechanics work well for us."

AFP queries, "What do you think may have a larger impact on companies like Delta -- institutional prime funds floating the NAV or the liquidity restrictions such as fees and gates? Quiroga tells AFP Exchange, "For Delta, the floating NAV is not necessarily the concern. Although the mechanics of how that will work on the daily movements of funds does concern us. Gates and fees are a concern to us. Since preservation of principal and access to cash are the primary objectives of our daily operational cash investments, gates and fees are of great concern and it might lead us to other forms of investments like government funds."

Finally, AFP asks, "Do you have an opinion on what type of spread it would take (​between prime funds and government funds) to keep/​move investors back into institutional prime funds? Quiroga answers, "​I am not sure that we would look at it that way but it does make sense that there should be a significant difference between government funds and prime funds. For us it is really about what makes sense for our daily cash needs and if we can'​t get comfortable with the gates and fees then we would have to look for an alternative."

One of the largest events for corporate treasurers, the New York Cash Exchange, takes place this Wednesday and Thursday at the New York Hilton. Many of the largest institutional money market funds providers will be exhibiting, and the conference will feature half a dozen sessions involving money fund and cash investing. Crane Data'​s Peter Crane will lead the first "​cash" session, entitled, "​Money Fund Rates & Regulations Roundtable," which will also feature BlackRock'​s Ronald Hill, Citi'​s Andrew Hollenhorst, and J.​P. Morgan Asset Management'​s Craig Ferrero.

Other Wednesday (​5/​27) NY Cash talks include: "Changing Dynamics in the Corporate Liquidity Landscape," featuring Jim Griffin of Goldman Sachs Asset Management and Crystal McGowan of Vornado Realty Trust; "Managing Liquidity: Be Prepared for the New Reality," with David Miller of the Hunt Companies and Michael Morin of Fidelity Investments; "Adapting to Change: The Power of Portals," presented by Gregory Fortuna of State Street'​s Fund Connect.

Thursday'​s NYCE talks include: "Panel - The Trinity of Challenges in Cash Management, with Donald Cooley and Will Goldthwait of SSGA and Chris Forno of Doral Bank USA; and, "Cash Investment Policies Post Money Fund Reform," featuring Tony Carfang of Treasury Strategies and Greg Fayvilevich of Fitch Ratings. Crane Data will be exhibiting at Booth #​210, so please stop by to visit if you'​re at the show!

Finally, we also wanted to remind anyone planning on attending our Crane'​s Money Fund Symposium next month (June 24-​26) at the Minneapolis Hilton to please make your hotel reservations and register soon! Our discounted hotel rate expires this week and we expect the hotel to be sold out shortly. (​Visit here to make Hotel reservations and here for the conference agenda.) See you next month in Minneapolis!

​

The 10th largest money market fund complex in the U.​S., Wells Fargo Advantage Funds, became the latest to lay out its plan to comply with pending SEC money market reforms. In a statement entitled, "Wells Fargo Advantage Funds Announces Changes to Money Market Fund Lineup," the company, with $​110.​5 billion in MMF assets (​as of March 31), categorizes which funds will be Retail, Institutional, and Government. To date, 7 of the 10 largest US money fund managers have announced money fund lineup changes. The release says, "Wells Fargo Advantage Funds today announced that its Board of Trustees preliminarily approved changes to its money market fund lineup to address the regulatory changes adopted by the U.​S. Securities and Exchange Commission (​SEC) in July 2014. These changes will become effective on or prior to October 14, 2016."

Karla Rabusch, President of Wells Fargo Advantage Funds, says, "We aim to offer a broad money market fund lineup that best meets the cash management needs of both our retail and institutional clients. After speaking at length with clients, we are confident that we are offering them the right mix of options, without wavering from our long-​standing investment approach that combines a rigorous credit analysis with steadfast attention to preservation of capital and liquidity." (​Note: Rabusch is also the keynote speaker at the upcoming Crane'​s Money Fund Symposium, June 24-​26, in Minneapolis, where she will address the issue of navigating the post-​reforms money fund landscape. Click to see the full conference agenda or to register .)

Wells' statement outlines which funds will be classified as "Retail prime and municipal money market funds." It says, "Under the new SEC regulations, retail prime and municipal money market funds are required to maintain policies and procedures that are reasonably designed to limit all beneficial owners of the fund to natural persons. These funds are permitted to continue to use amortized cost to transact at a stable $​1.​00 net asset value (​NAV) but may be subject to liquidity fees and/​or redemption gates in the event that their weekly liquid assets fall below 30%. Wells Fargo Advantage Funds intends that the following funds will take steps to qualify as retail money market funds: Wells Fargo Advantage California Municipal Money Market Fund, Wells Fargo Advantage Money Market Fund, Wells Fargo Advantage Municipal Money Market Fund, Wells Fargo Advantage National Tax-​Free Money Market Fund."

Three of these funds -- California Muni MMF ($​1 billion in assets); Advantage Muni ($​1.​5 billion); and Advantage National Tax-​Free ($​2.​6 billion) -– are currently classified by Crane Data as "​Muni Retail" funds. Only one -- Wells Fargo Advantage MMF ($​2.​7 billion) -– is considered "​Prime Retail." (​Asset totals are from Crane Data'​s May 2015 XLS, with data as of April 30, 2015, and combine all share classes.)

The release says of the new "Institutional prime and municipal money market funds," "These funds will no longer be permitted to maintain a stable $​1.​00 NAV but will instead be required to transact at their market-​based NAVs, rounded to four decimal places. They may also be subject to liquidity fees and/​or redemption gates in the event that their weekly liquid assets fall below 30%. Wells Fargo Advantage Funds intends to offer the following funds as institutional money market funds: Wells Fargo Advantage Cash Investment Money Market Fund, Wells Fargo Advantage Heritage Money Market Fund, Wells Fargo Advantage Municipal Cash Management Money Market Fund."

Advantage Cash Investment MMF ($​11.​1 billion) and Advantage Heritage ($​41.​0 billion) are currently classified as Prime Institutional. But both of these funds have "​Prime Retail" share classes in Crane Data'​s categorization of funds. Advantage Municipal Cash Management ($​1.​2 billion) is listed as Municipal Institutional.

Wells also discusses its new "Government money market funds." The release says, "Under the new SEC regulations, government money market funds are permitted to continue to maintain a stable $​1.​00 NAV. However, such government money market funds will be required to invest at least 99.​5% of total assets in government securities, cash, and/​or repurchase agreements that are fully collateralized by government securities or cash. The Wells Fargo Advantage 100% Treasury Money Market Fund, the Wells Fargo Advantage Government Money Market Fund, and the Wells Fargo Advantage Treasury Plus Money Market Fund invest exclusively in these securities and thus already comply with this new requirement. Additionally, the new SEC regulations do not mandate liquidity fees and redemption gates for government money market funds. The Board has determined that it has no current intention of adopting liquidity fees or redemption gates on the government money market funds."

They explain, "Wells Fargo Advantage Funds intends to continue offering the following funds as government money market funds: Wells Fargo Advantage 100% Treasury Money Market Fund, Wells Fargo Advantage Government Money Market Fund, Wells Fargo Advantage Treasury Plus Money Market Fund." Advantage 100% Treasury has $​10.​2 billion in assets in all its share classes, Advantage Government has $​22.​2 billion, and Advantage Treasury Plus has $​13.​2 billion.

Rabusch adds, "`​We also continue to evaluate opportunities for new product development. We remain actively engaged in discussions with our distribution partners and clients in an effort to understand how our investors' liquidity and cash management needs will change as a result of the new regulations. These discussions are helping us gather information so that we may better adapt to these regulatory changes and offer our clients the optimal mix of liquidity management solutions."

For more on Wells Fargo'​s MMF strategy, read our April Money Fund Intelligence profile of Jeff Weaver, Head of Money Funds at Wells Fargo Capital Management, "Wells Fargo'​s Jeff Weaver Says Clients Still Want Yield Too." In the interview he says, "When looking at money fund reform through a portfolio management lens, however, the news rules won'​t prompt a dramatic change from what we'​ve done before. For example, consider our government funds -- we'​ve always complied with them being at least 99.​5% invested in government securities."

Weaver adds, "We remain committed to offering retail and institutional prime, government, and municipal funds -- particularly if that'​s what our clients want -- and we believe they do. Many of our clients are in a wait-​and-​see mode until that October 2016 deadline approaches. Right now, we'​re evaluating our product lineup. We'​re speaking with clients with the goal of developing product solutions that best meet their needs. Our client base is largely institutional -- 90% institutional versus 10% retail -- so that is always front of mind as we'​re making these changes."

​

While most of the compliance dates for money market reforms are in 2016, there is one coming in 2015 -- July 14 to be exact. It'​s on reporting and disclosure; specifically, money market funds will be required to report certain information on Form N-​CR, as well as make related website disclosures. One of the industry'​s leading law firms, Dechert, published an article yesterday entitled, "U.​S. Money Market Fund Reform: Form N-​CR and Related Website Disclosure Compliance Deadline Quickly Approaching" that lays out everything money fund complexes need to know about complying with this piece of the reforms.

The article, which appears in the May issue of Dechert'​s OnPoint publication, was authored by Partner Jack Murphy, and Associates Stephen Cohen, Brenden Carroll, Justin Goldberg, and Joshua Katz. It says, "On July 23, 2014, the SEC approved sweeping amendments to Rule 2a-​7 and other rules that govern money market funds under the Investment Company Act of 1940. Among other requirements, the SEC adopted new Rule 30b1-​8 under the 1940 Act, which will require a money market fund to report information to the SEC regarding certain material events on Form N-​CR. Under this new reporting requirement, a money market fund must provide a brief summary of a Material Event within one business day of the occurrence of that Material Event and, for certain Material Events, the fund also must provide a follow-​up report that includes more complete information within four business days. Any filings made on Form N-​CR will become immediately public on the SEC'​s EDGAR website. Money market funds will be required to file Form N-​CR with the SEC for any Material Events occurring on or after July 14, 2015."

One of these material events is Default or Event of Insolvency. Murphy writes, "In the event of a default by, or the insolvency of, an issuer of one or more of a money market fund'​s portfolio securities (​or the issuer of a demand feature or guarantee to which a portfolio security or securities is subject), the value of which accounted for at least one-​half of one percent of the fund'​s total assets, the fund will be required to submit an initial report to the SEC on Form N-​CR within one business day of the default or insolvency."

Another is Provision of Financial Support. Dechert explains, "The provision of "​financial support" by an affiliated person, promoter or principal underwriter of a money market fund, or by an affiliated person of such a person, will require the fund to make a filing on Form N-​CR. Financial support is defined to include any: capital contribution; purchase of a security from the fund in reliance on Rule 17a-​9 under the 1940 Act; purchase of any defaulted or devalued security at par; execution of a letter of credit or letter of indemnity; capital support agreement (​whether or not the fund ultimately receives support); performance guarantee; or any other similar action reasonably intended to increase or stabilize the value or liquidity of the fund'​s portfolio."

A third is Deviation Between Current NAV per Share and Intended Stable Price per Share. Murphy comments, "If a stable value money market fund'​s current market-​based NAV per share (​rounded to the fourth decimal place in the case of a fund with a $​1.​00 share price, or an equivalent level of accuracy for a fund with a different share price) deviates downward from its intended stable price per share by more than one-​quarter of one percent, the fund will be required to submit an initial report to the SEC on Form N-​CR within one business day." Fund sponsors will also have to report on Form N-​CR the Imposition of Liquidity Fees and Redemption Gates, but not by the July 14, 2015 compliance date as that provision doesn'​t go into effect until October 2016.

Further, the article discusses Website Posting Requirements. It says, "Under the Amendments, Rule 2a-​7 will require that a money market fund post on its website information about certain Material Events. A money market fund will be required to prominently disclose on its website for a period of at least one year, beginning no later than the same business day on which the fund files an initial report on Form N-​CR, information that the fund is required to report on Form N-​CR in connection with the following events: the provision of any financial support by an affiliated person, promoter or principal underwriter of the fund, or an affiliated person of such a person; and a decline in weekly liquid assets below 10 percent of total fund assets or the imposition or removal of a liquidity fee or a redemption gate. The money market fund'​s website also must include the following statement: The Fund was required to disclose additional information about this event [​or "​these events," as appropriate] on Form N-​CR and to file this form with the Securities and Exchange Commission. Any Form N-​CR filing submitted by the Fund is available on the EDGAR Database on the Securities and Exchange Commission'​s Internet site at www.​sec.​gov."

Further, Murphy et. al. highlight Possible Changes to Policies and Procedures as the result of these requirements. He writes, "In light of the rapidly-​approaching July 14, 2015 compliance date, a money market fund and its investment adviser should consider updating existing policies and procedures (​or developing new policies and procedures) to ensure that, upon the occurrence of a Material Event, the fund will be in a position to make timely and accurate filings on Form N-​CR and related disclosures on the fund'​s website. Among other things, updated policies and procedures could describe the role of a money market fund'​s adviser or other service provider in assisting the fund in complying with the filing and posting requirements. For example, the policies and procedures could require that the investment adviser or other service provider prepare the Form N-​CR filings and that, prior to submitting any report on Form N-​CR, the investment adviser will promptly notify the board of the Material Event and of any actions that the adviser has taken or recommends taking, in response to such Material Event."

Also, Dechert says, "Because of the potential sensitivity of information that will be included on Form N-​CR, which will become public immediately upon filing, the policies and procedures also could discuss the role of outside counsel and/​or counsel to the independent directors/​trustees in preparing or reviewing the disclosures required on Form N-​CR, particularly the more detailed information that is required to be reported within four business days of the occurrence of certain Material Events. In addition to the Form N-​CR and website disclosure requirements, a money market fund and its investment adviser may wish to consider whether updated policies and procedures should address other communications that may be necessary or appropriate under the circumstances, such as supplements to the fund'​s registration statement or other communications to shareholders."

It concludes, "Finally, a money market fund and its investment adviser may wish to consider including in any relevant policies and procedures a statement that information regarding a Material Event or an intended filing should not be disseminated beyond those persons at the adviser, the board, outside counsel and other service providers who have a need to know based on their involvement with the process, unless and until the information has been made available to all shareholders or the general public. Although such a policy may be covered under existing policies and procedures relating to the disclosure of material non-​public information, it may be appropriate to consider specifically noting the importance of keeping information about Material Events confidential until disclosed to the public."

​

JP Morgan Asset Management is streamlining the number of '​AAA' ratings on its money market mutual funds, removing triple-​A ratings on a number of its money market funds, and it recently added a new ultra-​short "​offshore" money fund. The ratings removals include funds rated '​AAAm' by S&​P and '​Aaa-​mf' by Moody'​s and involve U.​S. money funds, as well as "​offshore" Luxembourg-​domiciled money funds. On the changes, JP Morgan Asset management'​s John Donohue, CEO of Investment Management Americas says, "The three major NRSRO'​s views of credit and risk management have diverged significantly over the past few years and have imposed differing investment requirements on rated money market funds. Our request to remove these ratings follows an ongoing global strategic review of all of our ratings across the J.​P. Morgan range of money market funds. Removing these ratings does not signal any change in the investment policies or credit process of the money market funds."

Specifically, JP Morgan AM has had its Moody'​s triple-​A ratings removed from two "​offshore" funds, JP Morgan Euro Liquidity Fund and JP Morgan Sterling Liquidity Fund. A press release issued by Moody'​s, entitled, "Moody'​s Withdraws the Aaa-​mf Money Market Fund Ratings of Two JPMorgan Funds," says, "Moody'​s Investors Service, has today withdrawn the Aaa-​mf money market fund rating of JPMorgan Liquidity Funds -- Euro Liquidity Fund and JPMorgan Liquidity Funds -- Sterling Liquidity Fund. The Funds are managed by JPMorgan Asset Management (​UK) Limited. Moody'​s has withdrawn the rating for its own business reasons." Each of these funds, however, remains triple-​A rated by both S&​P and Fitch Ratings.

JP Morgan has also requested to have S&​P triple-​A ratings removed from several U.​S. rated funds, including JPMorgan US Government, JPMorgan US Treasury Plus, JPMorgan 100% US Treasury Securities, JPMorgan Federal MMF, and all their various share classes. The US Government Fund remains triple-​A rated by Moody'​s and Fitch, while the other three remain Aaa-​mf rated by Moody'​s. JP Morgan also dropped its S&​P ratings on three Luxembourg-​domiciled funds -- JPMorgan Liquidity Funds – Sterling Gilt Liquidity Fund, US Dollar Government Liquidity Funds, and US Dollar Treasury Liquidity Fund.

JP Morgan also added a rating to a new ultra-​short "​offshore" money fund. A press release entitled, "Moody'​s Assigns Aaa-​mf Rating to JP Morgan Liquidity Funds -- US Dollar Current Yield Liquidity Fund," says the ratings firm assigned a Aaa-​mf rating to the new "​offshore" fund, JP Morgan US Dollar Current Yield Liquidity Fund. The release says, "​The rating reflects Moody'​s view that the fund will have a very strong ability to meet the dual objectives of providing liquidity and preserving capital. This view is supported by the fund'​s high scores for each of the key rating factors, including credit quality, asset profile, liquidity and exposure to market risk.... The rating also benefits from the expectation that the fund will maintain a very short weighted average maturity (​WAM) and low asset concentration which results in a score of '​1' for our assessment of the fund'​s asset profile under Moody'​s money market fund rating scorecard. We expect that the fund'​s WAM will typically not exceed 10 days."

It continues, "While the fund'​s shareholder base is likely to exhibit some lumpiness as the fund ramps up, our expectation is that the fund will maintain a strong liquidity profile supported by high levels of overnight and near-​term liquidity in the portfolio and the advisor'​s track record with respect to disciplined liquidity management. Overnight liquidity will typically be in the form of overnight commercial paper and/​or time deposits as well as repurchase agreements. The target investor base for this fund will include clients of large US banks who may be impacted by these banks' decision to shed non-​operational deposits in response to new bank regulatory reforms. JPMIM is positioning the Fund as a substitute to a bank deposit product to capture these assets. The fund maintains low exposure to market risk resulting in a NAV Stress score of '​1' under Moody'​s money market fund rating scorecard consistent with other Aaa-​mf rated prime money market funds. We expect the fund'​s sensitivity to market risk to remain very low supported by the high quality of the investment portfolio and the a very short WAM."

JP Morgan is the second largest money market fund manager in the U.​S. with $​240.​5 billion (​it has $​368.​5 billion in global money fund assets) and the largest manager of triple-​A rated money funds. Among its U.​S. domestic money funds, $​215.​4 billion were AAA rated as of April 30 (​not including these changes), the most of any fund sponsor. That represents 15% of total AAA rated MMF assets. Federated was second among managers of triple-​A rated funds with $​155.​9B (​10.​8%), followed by Dreyfus with $​140.​5B (​9.​8%), BlackRock, and Goldman Sachs, both of which had $​139.​8B (​9.​7%).

Crane Data'​s latest Money Fund Intelligence XLS shows that as of April 30, 2015, 732 MMF funds totaling $​1.​541 trillion, or 62.​8% of all money market fund assets, were AAA rated. Most of the AAA rated funds tend to be Institutional as $​1.​260 trillion of AAA rated funds were in Institutional assets. Breaking it down by rating agency, S&​P had the most with $​1.​467 trillion, or 59.​8% of U.​S. money fund assets, rated as AAA. Moody'​s was next with $​1.​357 trillion, or 55.​3%, followed by Fitch with $​521 billion, or 21.​3%.

Going forward, we expect to see more ratings changes, as the re-​classification of money market funds to comply with SEC reforms segments funds into either "​retail" or "​institutional" and as new funds are launched or liquidated in the coming 16 months. Also, supply constraints, repo counterparty issues and the need to "​barbell" and add yield on the longer-​end are causing some managers to weigh rating historical role against the restrictions some are placing on fund investments.

​

The Investment Company Institute released its latest "Money Market Fund Holdings" report (​with data as of April 30, 2015), which tracks the aggregate daily and weekly liquid assets, regional exposure, and maturities (​WAM and WAL) for Prime and Government money market funds. ICI'​s "Prime and Government Money Market Funds' Daily and Weekly Liquid Assets" table shows Prime Money Market Funds' Daily liquid assets at 23.​3% as of April 30, down from 24.​9% on March 31. Daily liquid assets were made up of: "All securities maturing within 1 day," which totaled 18.​2% (​vs. 19.​2% last month) and "Other treasury securities," which added 5.​2% (​down from 5.​8% last month). Prime funds' Weekly liquid assets totaled 37.​6% (​vs. 37.​9% last month), which was made up of "​All securities maturing within 5 days" (​31.​1% vs. 30.​8% in March), Other treasury securities (​5.​0% vs. 5.​8% in March), and Other agency securities (​1.​5% vs. 1.​3% a month ago). (​See also Crane Data'​s May 12 "​News", "May MF Portfolio Holdings Show Plunge in Fed Repo, Jump in TDs, CP.") We also examine the latest MMF holdings report from JP Morgan Securities below.

The ICI holdings report says Government Money Market Funds' Daily liquid assets totaled 61.​6% as of April 30 vs. 56.​0% in March. All securities maturing within 1 day totaled 26.​3% vs. 18.​4% last month. Other treasury securities added 35.​3% (​vs. 37.​6% in March). Weekly liquid assets totaled 80.​2% (​vs. 82.​6%), which was comprised of All securities maturing within 5 days (​39.​5% vs. 38.​2%), Other treasury securities (​33.​1% vs. 35.​6%), and Other agency securities (​7.​7% vs. 8.​8%).

ICI'​s "​Prime and Government Money Market Funds' Holdings, by Region of Issuer" table shows Prime Money Market Funds with 41.​6% in the Americas (​vs. 50.​4% last month), 19.​6% in Asia Pacific (​vs. 19.​4%), 38.​5% in Europe (​vs. 29.​4%), and 0.​4% in Other and Supranational (​vs. 0.​3% last month). Government Money Market Funds held 84.​4% in the Americas (​vs. 91.​9% last month), 0.​5% in Asia Pacific (​vs. 0.​2%), 15.​2% in Europe (​vs. 7.​9%), and 0.​1% in Supranational (​vs. 0.​1%).

The table, "​Prime and Government Money Market Funds' WAMs and WALs" shows Prime MMFs WAMs at 40 days as of April 30, down from 42 days last month. WALs were at 78 days, down from 79 days last month. Government MMFs' WAMs was at 43 days, down from 44 days last month, while WALs was at 82 days, up from 81 days. ICI'​s release explains, "​Each month, ICI reports numbers based on the Securities and Exchange Commission'​s Form N-​MFP data, which many fund sponsors provide directly to the Institute. ICI'​s data report for April covers funds holding 94 percent of taxable money market fund assets." Note: ICI publishes aggregates but doesn'​t publish individual fund holdings.

In their latest "Prime Money Market Fund Holdings Update," JP Morgan Securities', Alex Roever, Teresa Ho, and John Iborg explain why recent outflows are not necessarily due to reforms. They write, "​Prime retail funds lost $​11bn or -​2.​3% of AuM, while prime institutional fund AuM decreased by $​40bn or -​4.​1%. In total, prime MMFs shed $​51bn or -​3.​5% of AuM during the month. Furthermore, government funds experienced $​17bn or -​1.​8% in outflows. Funds built liquidity in order to meet outflows, and shortened maturities throughout the month. Indeed, at the end of April, prime fund WAMs stood at an average of 39 days, close to a multi-​year low. Additionally, average WAMs of government funds decreased by 1day over the course of the month to 41 days, also close to a multi-​year low."

They add, "Outflows have been a typical occurrence during the first half of the year. Since 2012, tax season and the dissipation of cash balances built up around the end of the year has resulted in average outflows of $​47bn for prime MMFs, and $​63bn for government MMFs through the end of April. For perspective, YTD, outflows from prime and government MMF have registered $​51bn and $​17bn respectively. We do not believe that MMF reform has been the driving factor behind the prime outflows experienced to date. As we pointed out above, prime fund outflows are normal for this time of the year, and 2015 has been mostly on par. Although the timing is uncertain, we do not expect sizable reform–​related flows to occur until later this year. However, the degree to which prime funds are changing their maturity compositions suggests that these funds are already preparing for further outflows to occur."

They continue, "Bank exposures rebounded during April. Prime funds increased their holdings of banks by $​76bn month-​over-​month, as quarter-​end balance sheet management subsided. Not surprisingly, time deposits were the primary asset class behind the rebound, increasing by $​97bn principally across European banks. For the most part, other asset classes remained unchanged, with the exception of CDs. Holdings of CDs decreased by $​20bn, concentrated across Canadian, Japanese, Swedish and Dutch banks."

Further, JPM explains, "Prime fund usage of the Fed RRP decreased by $​148bn month-​over-​month. For prime MMFs, the Fed RRP facility has served as a viable source of backstop supply, particularly on quarter-​end dates when large dealers temporarily scale back on short-​term funding. With quarter-​end supply pressures alleviated, prime funds used $​24bn of RRP versus $​172bn at the end of March.... Prime MMFs increased their holdings of US agency securities by $​19bn month-​over-​month while paring back holdings of Treasuries by $​14bn. We suspect that with quarter-​end out of the way, prime funds preferred agencies for their relative yield pickup to short-​term Treasuries, as 1m and 3m bills traded at zero to negative levels at some points prior to the end of the month. However, looking forward, we expect allocations to Treasuries to continue their up-​trend as funds further bolster liquidity as a result of MMF reform."

Finally, JPM'​s latest weekly adds, "​Large money fund complexes continue to come forward with their strategies for dealing with MMF reform. BlackRock, Legg Mason, Invesco, and Schwab each made respective announcements throughout April and early May. Blackrock announced that it will restructure a portion of its institutional prime and muni MMFs into 7 day max-​maturity funds, will restructure certain prime MMFs into government MMFs, and will not implement gates and fees for its government MMFs. Legg Mason announced that it intends to offer two non-​money market short duration bond funds, and that it will not implement gates and fees on its government MMFs. Most recently, Schwab announced that it will not implement gates and fees on its government MMFs. We expect more fund families to come forward, and more specific details be released, as the year progresses and as we get closer to the final rules taking effect in 2016.

​

Wells Fargo Advantage Funds' monthly "Overview Strategy, and Outlook" examines recent changes in the repo market and their impact on money market funds. Also, we report on Part 2 of a webinar series from Capital Advisors Group on "Recent Money Fund Developments and Key Issues for Corporate Cash Investors." (​Read coverage of Part 1 of the webinar in our April 10 "News," "Capital Advisors' Pan, Campbell on Recent MMF Moves; $​615B Outflow?") The Wells Fargo "​Focus piece: Repurchase agreements", authored by Jeff Weaver, Head of Money Funds and Short Duration, and his team, explains, "The first part of April was an unusually heavy news cycle for repurchase agreements (​repos). These sleepy, white-​bread staples of the money markets typically get little press, let alone a spotlight focused on them. However, several events have conspired to bring them front and center."

Wells says, "First, it'​s unlikely we'​d be able to write any piece on the repo market without mentioning the Federal Reserve (​Fed), the largest repo counterparty in the U.​S. The Fed finds itself on the verge of a tightening cycle, yet meeting minutes suggest there is still some debate within the Fed on exactly how each policy tool will be deployed. It may temporarily increase the size of the reverse repurchase (​RRP) facility as it implements its tightening cycle but reduce it soon thereafter. So while there may be initial good news at the beginning of the tightening effort, it is possible that when the Fed contracts the size of the facility, it could be capped at a lower level than it is today -- which would not be good news for program participants."

The piece continues, "This is because, according to The Wall Street Journal, repos and repo collateral have become increasingly scarce due to regulatory policies that were meant to decrease systemic risk and stabilize financial markets but have instead unintentionally resulted in increased price volatility and decreased liquidity! One journalist even went so far as to characterize the fixed income market as broken. Another news article highlighted an additional unintended consequence of the regulatory environment: borrowers and lenders transacting directly without the benefit of a broker/​dealer or bank intermediary."

Finally, Wells adds, "Some of these issues are old news and have been discussed to some extent in our previous commentaries.... It is thought that the contractual changes to repos would be a temporary postponement of the early termination provisions and an extension of the automatic stay provision to the collateral foreclosure process. The importance of these proposed changes, and their ramifications for money market funds, is probably best understood by refreshing in our minds the mechanics of repos, how they are used, and their benefits; this would then enable us to follow through with the rule changes and the downstream effects that might need some resolution for investors prior to implementation." The rest of the Wells report features an excellent summary of the repo market, as well as a summary of repo use in money market funds (​using Crane Data info).

On the latest Capital Advisors webinar, CEO Ben Campbell and Director of Investment Research Lance Pan looked at the consequences of the SEC money market reforms for investors, particularly corporate treasurers. "​If you think of the scope of the changes, they impact every type of investment vehicle," said Campbell. "We view this as a major table reset, and we think it'​s a very good time to step back and look at the consequences of these reforms and what the new options are and how those would be applied to your objectives."

Campbell said the most likely place for MMF assets to shift in the near term is to government MMFs since they have stable NAVs. "We feel this will have a significant impact given that this represents about a tripling of the government money market assets. If you have $​1.​0 trillion shifting and the whole market is $​7.​2T, it'​s about 15% of the overall supply. We would expect there to be significant decline in the returns of the government securities caused by this factor." He added, "​But that'​s not to say the money will remain there forever. There will likely be a transition period for the market as new products are stress tested and as people move out from the Treasury world."

Pan analyzed some of the options that are available to investors beyond the stable NAV government funds. "First off is Variable NAV prime funds.... But people will have to answer this question -- Is it workable? ... [​W]​ill institutional investors embrace VNAV money market funds? That'​s a big unknown, because the product only works if the majority of the shareholders think it will work. Lastly, from a liquidity point of view, do you have the right tools to basically project or monitor whether the weekly liquidity falls below that red line?" The proposed 60-​day and 7-​day maximum maturity funds are subsets of this category, offering better principal preservation and liquidity than other VNAVs, but with potential supply challenges, he said.

Next, Pan talked about 3c-​7 funds, or Private funds. "​They are not money market funds; they are structured as a limited partnership," he said. While they can offer a stable NAV. they are not subject to 2a-​7 rules and protections such as minimum credit requirement, minimum maturity and duration requirements, transparency, and the concentration of assets. They could also have liquidity challenges. "​If you have a limited partnership you may get into this situation where you may have some kind of unforeseen liquidity issues if one of the large shareholders were to pull out," said Pan.

Regarding Ultra Short Bond Funds and ETFs, Pan said, "The rationale here is, if you are not constrained by 2a-​7, you can perhaps have more supply, and if you can live with an NAV that floats, why not just go out on the curve a bit more and pick up more yield? The downside is, these products are not subject to 2a-​7 protections. You are using these as investment vehicles, not as liquidity vehicles because you will have daily fluctuations much more than the 2a-​7 VNAV funds."

Pan concludes, "The last item I'​m going to touch on is the direct purchase, separately managed account concept. This is a fairly customized approach," he said. "You basically own the portfolio of securities." Thus, they are not subject to the variable NAV or fees and gates. He added, "​We consider them as self-​generated liquidity. They do come with pros and cons. The pro side is you don'​t share the liquidity with anybody else, so you don'​t have to worry about runs, for example. The con side is you would need to do a bit more homework to plan out your liquidity and leave enough cushion for you for the unforeseen needs in the future." Whichever way investors go, they should make their decisions well in advance of October 2016, said Campbell. "You don'​t want to wait to the tail end of this to see what happens."

​

As you'​ve hopefully been reading in www.​CraneData.​com'​s daily "​News", we have reported on all of the news that has come to our attention over the past several months from companies announcing their intentions post-​money market reform. Of the 20 largest money fund complexes, half have issued updates, including the four largest -- Fidelity, JP Morgan, BlackRock, and Federated. Note that through all of the announced changes, every statement to date has pledged to offer all types of funds. Here, we recap all of the statements, and dates they were announced, that have happened so far. (​Major parts of this summary were originally printed in our May Money Fund Intelligence. A PDF version of the MFI story, "Schwab and Latest Fund Co. Changes; SEC Answers FAQs" may be accessed here.) We also look at a new release from Fitch Ratings called "Post-​MMF Reform Cash Management Landscape Takes Shape," which looks at how the money market environment is shifting.

As we wrote in our May MFI, Fidelity (​our "News" originally appeared on 2/​2/​14) will shift about $​130B from Prime Retail to Government, including the world'​s largest MMF, Fidelity Cash Reserves, and will merge MMFs with similar strategies. The company has not yet commented on plans for its Institutional MMFs.

JP Morgan (​2/​23) said JP Morgan Prime, the largest Prime Institutional fund, will remain as such and will be subject to a Floating NAV, while JP Morgan Liquid Assets will shift to Retail. JPM'​s release is one of the few to detail which funds will be retail and which will be institutional among its lineup.

BlackRock (​4/​7) said its largest MMF, TempFund, will remain a Prime Institutional fund, subject to floating NAV. The $​2.​4B TempCash will remain Prime Institutional, but will be converted to a 7-​day maximum maturity fund while some Muni funds will also be converted to 7-​day funds. Also, several Prime Retail funds will be converted to Govt funds.

Federated (​2/​20) will convert several of its Prime Institutional Funds to 60-​day maximum maturity funds. Details on which funds or amount of assets converted have not been released. The company also continues to mention private funds and offshore funds as options.

Goldman Sachs (​1/​22) said it will start complying with the new definition of Government MMFs early, converting 4 Government MMFs to the 99.​5% requirement. It also said it won'​t have fees and gates on its government funds. Dreyfus (​3/​11) is considering offering 60-​day maximum maturity Prime Institutional funds. Dreyfus will offer all types of money funds and same-​day settlement on floating NAV MMFs.

Charles Schwab (​5/​4) will not implement fees and gates on its government, and will have a range of options, including Floating NAV funds. A spokesperson for Schwab tells Crane Data, "​We are committed to providing our clients a wide array of choices in how they manage their portfolios. Clients in Prime or Municipal MMFs who will be eligible for "​Retail" funds and who continue to meet Schwab'​s MMF Sweep Feature criteria will stay in the Cash Feature they have selected.... You should expect to see filings designed to ensure all of our existing Prime and Municipal funds remain "​Retail," as well as filings for new "​Institutional" funds, as appropriate."

Western (​4/​8) will adapt funds to new requirements, but won'​t have fees and gates on Government funds. It has also launched two Short-​Term Bond Funds. Invesco (​4/​20) won'​t implement fees and gates on its Government Funds. First American (​4/​1) won'​t impose fees and gates on Government Funds.

No fund groups have announced plans to implement optional emergency fees and gates for Government funds to date. Vanguard, Morgan Stanley, Wells Fargo (​though see last month'​s MFI "​Profile"), Northern (​watch for a "​profile" next month in MFI), SSgA, and BofA have yet to detail plans publicly.

Fitch'​s new report takes a broader view of the changes. It says, "The post-​money fund reform cash management landscape in the U.​S. is taking shape as fund managers unveil adaptation plans, according to Fitch Ratings. The moves hint at a sizable shift into government funds, a wound-​down institutional prime space, and growth in alternative products such as separately managed accounts, private money funds, and short-​term bond funds. Managers responsible for over $​1.​4 trillion, or 59% of U.​S. money market fund assets, have provided guidance thus far."

It continues, "​As managers announce plans in response to reform an overriding theme appears to be more options for investors. Two managers announced plans to convert over $​100 billion of prime retail funds into government funds to maintain a stable NAV and avoid fees and gates. Asset managers also said they will introduce new '​short-​maturity' institutional prime money funds, which will only buy securities maturing in less than 60 days to reduce the likelihood of, although not eliminate, NAV volatility. BlackRock went further, committing to establish a 7-​day maturity institutional prime fund, which could potentially avoid triggering the new fees and gates provision. On the other hand, all managers also committed to maintaining existing large institutional prime funds (​which will have floating NAV in 2016), and all also noted that they will opt out of the fees and gates feature that is optional for government funds."

Further, Fitch writes, "While the industry largely expects assets to shift from prime to government funds due to reform, so far flows have been muted. Institutional government fund assets are up 8% since reform was enacted in July 2014, but institutional prime funds are also up 2%. Seasonal factors affect money fund flows, so it is hard to tell if the data is indicative of reform-​related flows towards government funds, which will likely intensify closer to the implementation date for floating NAV and fees and gates in October 2016. Anecdotally Fitch is aware that a small number of institutional money fund clients have switched from prime to government funds in response to reform. The increased demand for government funds may bump against shortages in supply and, consequently, wider spreads between government and prime funds."

Finally, Fitch reports, "[​A]​pproximately 50 EU banks and banking groups will face long-​term rating pressures as a result of Fitch'​s reduced sovereign-​support assumptions, which may impact the banks' short-​term ratings during 2Q15. Many prime money funds have exposures to these banks and may reassess their positioning ahead of rating actions." It continues, "European banks susceptible to downgrades currently represent an average of 3.​3% of U.​S. prime money fund assets, but exposures vary across funds and issuers as the charts on the right show. The exposure of individual funds to this group of banks ranges from 0% to 29% but is concentrated in very short-​dated securities, primarily under 1 month, and in many cases overnight."

​

Last week we wrote about the release of ICI'​s "​2015 Investment Company Fact Book" (​see our May 5 Crane Data "​News," "ICI'​s 2015 Investment Company Fact Book: MMF Assets, Corps Hold Fast). But today we examine the "Fact Book'​s" numerous "Data Tables" on "Money Market Mutual Funds (​which start on page 207) in more detail. ICI lists annual statistics on shareholder accounts, the number of funds, net assets, net new cash flows, paid and reinvested dividends, composition of prime and government funds, and net assets of institutional investors by type of institution (​one of the only glimpses of fund investors types available anywhere). We also examine some of the data tables related to Bond Fund assets, flows, portfolio holdings, and fees. (​Watch for more on these too in our May Bond Fund Intelligence, which is due to ship Friday.)

ICI'​s "Table 36" (​page 208), "Total Net Assets of Money Market Funds by Type of Funds" shows us that total net assets in taxable U.​S. money market funds increased 0.​25% to $​2.​725 trillion in 2014. At year-​end 2014, $​1.​820 trillion was in taxable institutional money market funds (​66.​8%), up 2.​1% from 2013. Also, $​905.​1 billion was in taxable retail money market funds (​33.​2%), down 3.​2% from the previous year. Breaking the numbers down by fund type, $​1.​453 trillion (​53.​3%) was in prime funds (​down 2.​1%), $​1.​010 trillion (​37.​1%) was in government money market funds (​up 5.​0%), and $​260. 8 billion (​9.​5%) in tax-​exempt accounts (​up 3.​8%).

Table 37, "Net New Cash Flow of Money Market Funds by Type of Fund," shows that there was $​6.​3 billion in net new cash flow into money market funds last year, buoyed by $​48.​2 billion in Government MMF inflows. Prime funds, on the other hand, had an outflow of $​31.​8 billion in 2014, while Tax Exempt funds had an outflow of $​10.​1B. Further, Retail MMFs had an outflow of $​30.​5B, while Institutional funds had an inflow of $​36.​8 billion. Paid dividends totaled a mere $​7.​6 billion last year, down from $​8.​0 billion in 2013. (​This is down drastically from the peak of almost $​128 billion in annual dividends in 2007.) Also, there was $​5.​0 billion in reinvested dividends, down from $​5.​2 billion in 2012. (​See Table 39 on page 211.)

ICI'​s Table 40, "Asset Composition of Taxable Government Money Market Funds as a Percentage of Total Net Assets" show that of the $​1.​010 trillion in taxable government money market funds, 31.​3% were in U.​S. Government Agency issues, 34.​7% were in Repurchase Agreements, 21.​2% were in U.​S. Treasury Bills, and 13.​5% were in Other Treasury Securities. Another -​1.​2% was in "​Other" assets, 0.​5% was in Commercial Paper (​we assume this was government-​backed CP or a reporting mistake) and 0.​1% was in Corporate Notes.

Table 41, "Asset Composition of Taxable Prime Money Market Funds," shows that of the $​1.​453 billion in taxable prime money market funds, 35.​7% was in Certificates of Deposit, 23.​0% was in Commercial Paper, 20.​9% was in Repurchase Agreements, 5.​1% was in U.​S. Government Agency issues, 2.​6% was in Other Treasury Securities, 3.​9% was in Corporate Notes, 1.​6% percent in Bank Notes, 2.​1% in U.​S. Treasury Bills, 1.​7% in Eurodollar CDs, and 3.​5% in Other assets (​which includes Banker'​s Acceptances, Municipal Securities and Cash Reserves).

ICI'​s annual statistics also show that there'​s been a steady decline in the number of money market mutual funds over the last 15 years. (​See Table 35 on page 207.) In 2014, according to the Fact Book, there were a total of 528 funds, down from 555 in 2013. The number has dropped every year since it peaked in 1999 at 1,​045 MMFs. The number of share classes stood at 1,​507 last year, down from 1,​571 in 2013 and from the peak of 2,​053 in 2004.

Finally, Table 64 on page 236, "Total Net Assets of Institutional Investors in Taxable Money Market Funds by Type of Institution and Type of Fund," shows that there was $​1.​013 trillion of total net assets with $​69.​2 billion in individual accounts and $​943.​8 billion in Institutional accounts. Of the $​943.​9 billion in Institutional accounts, $​499.​1 billion were from business corporations (​52.​9%), $​329.​1 billion from financial institutions (​34.​9%), $​64.​9 billion from nonprofit organizations (​6.​9%), and $​50.​8 billion were from Other (​5.​4%).

Looking at the Data Tables related to Bond Funds, Table 3 on page 175, "Total Net Assets of the Mutual Fund Industry," shows that total assets in bond funds at the end of 2014 was $​3.​460 trillion, up 5.​2% for the year. Bond funds represented 21.​2% of all mutual fund assets. Of that total, $​2.​894 trillion was in taxable bond funds while $​566 billion was in Municipal Bond Funds. The total number of bond funds, Table 5, was 2,​088 in 2014 with 1,​531 taxable funds and 557 muni funds, up from 2,​017 in 2013. The number of share classes, Table 7, was 6,​740, up from 6,​469 in 2013. Of the 6,​740, 4,​997 were in taxable bond funds while 1,​743 were in muni bond funds. Table 17 on page 189, "Net New Cash Flow of Long-​Term Mutual Funds," shows that bond funds had inflows of $​43.​5 billion, up from $​71.​2 billion in outflows in 2013.

Further, Table 28 on page 200 looks at "Portfolio Holdings of Long-​term Mutual Funds as a Percentage of Total Net Assets by Type of Fund." Bond funds had 43.​8% in Corporate Bonds, 31.​3% in Long-​term Government Bonds, 16.​1% in Municipal Bonds, 8.​4% in Liquid Assets, 1.​2% in Common and Preferred Stocks, and -​0.​7% in Other. Finally, from page 92, "Trends in Mutual Fund Fees and Expenses," the Fact Book says the average bond fund expense ratio was 57 basis points in 2014, down from 61 basis points in 2013 and down from 76 basis points in 2000, a decline of 25 percent.

​

Crane Data'​s latest Money Fund Intelligence Family & Global Rankings, which rank the asset totals (​and break out by type of fund) and market share of managers of money market mutual funds in the U.​S. and globally, were sent out to subscribers late last week. The May edition, with data as of April 30, 2015, shows asset decreases for almost all of money fund complexes in the latest month. The vast majority of managers also show losses over the past three months. Assets declined by $​89.​0 billion overall, or 3.​6%, in April; over the last 3 months, assets are down $​112.​5 billion, or 4.​3%. But for the past 12 months through March 31, total assets are flat -- down just $​1.​3 billion, or 0.​1%. Below, we review the latest market share changes and figures. (​Our domestic U.​S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product, and the combined "​Family & Global Rankings" are available to our Money Fund Wisdom subscribers.)

The only gainers in April were First American and Oppenheimer, rising by just $​261 million and $​713 million, respectively. American Funds was flat, and everyone else was down. Morgan Stanley, Franklin, Vanguard, Oppenheimer, and Northern had the only increases over the 3 months through April 30, 2015, rising by $​5.​9B, $​6.​1B, $​262M, $​214M,​and $​58M, respectively.

Our latest domestic U.​S. money fund Family Rankings show that Fidelity Investments remained the largest money fund manager with $​394.​7 billion, or 15.​9% of all assets (​down $​8.​7 billion in April, down $​10.​2 billion over 3 mos., and down $​13.​9B over 12 months), followed by JPMorgan'​s $​240.​5 billion, or 9.​7% (​down $​7.​4B, down $​15.​5B, and up $​156M for the past 1-​month, 3-​months and 12-​months, respectively). BlackRock remained in third with $​199.​3 billion, or 8.​0% of assets (​down $​16.​3B, down $​17.​2B, and up $​7.​3B). Federated Investors was fourth with $​196.​1 billion, or 7.​9% of assets (​down $​9.​6B, down $​14.​5B, and down $​14.​5B), and Vanguard ranked fifth with $​172.​3 billion, or 6.​9% (​down $​1.​4B, up $​262M, and up $​191M).

The sixth through tenth largest U.​S. managers include: Dreyfus ($​165.​3B, or 6.​6%), Schwab ($​153.​7B, 6.​2%), Goldman Sachs ($​140.​2B, or 5.​6%), Morgan Stanley ($​115.​3B, or 4.​6%), and Wells Fargo ($​105.​5B, or 4.​2%). The eleventh through twentieth largest U.​S. money fund managers (​in order) include: Northern ($​82.​6B, or 3.​3%), SSgA ($​78.​0B, or 3.​1%), Invesco ($​53.​7B, or 2.​2%), BofA ($​46.​2B, or 1.​9%), Western Asset ($​43.​3B, or 1.​7%), First American ($​41.​3B, or 1.​7%), UBS ($​35.​3B, or 1.​4%), Deutsche ($​29.​0B, or 1.​2%), Franklin ($​24.​8B, or 1.​0%), and RBC ($​15.​4B, or 0.​6%).

Crane Data currently tracks 71 managers, down one from last month. Alpine Funds, with $​106 million in assets, liquidated its lone money fund, Alpine Municipal Money Market Fund. See our April 14 "​News", "Fidelity Operational Update Details More Changes; Alpine Liquidates."

Over the past year through April 30, 2015, Morgan Stanley showed the largest asset increase (​up $​16.​4B, or 16.​6%), followed by Goldman Sachs (​up $​11.​9B, or 9.​2%), Dreyfus (​up $​7.​4B, or 4.​7%), BlackRock (​up $​7.​3B, or 3.​8%), Northern Trust (​up $​7.​2B, or 9.​5%), and Franklin (​up $​6.​3B, or 33.​7%). Other asset gainers for the year include: First American (​up $​3.​4B, or 9.​0%), Western (​up $​2.​3B, or 5.​5%), BofA (​up $​2.​2B, or 5.​1%), HSBC (​up $​1.​9B, 17.​4%), and SEI (​up $​746M, or 6.​3%). The biggest decliners over 12 months include: Federated (​down $​14.​5B, or -​6.​9%), Fidelity (​down $​13.​9B, or -​3.​4%), Invesco (​down $​7.​4B, or -​12.​2%), Schwab (​down $​6.​9B, or -​4.​3%), Deutsche (​down $​5.​4B, or -​15.​8%, UBS (​down $​3.​8B, or -​9.​8%), RBC (​down $​3.​8B, or -​19.​6%), SSgA (​down $​2.​1B, or -​2.​7%), and T. Rowe Price (​down $​1.​5B, or -​9.​1%). (​Note that money fund assets are very volatile month to month.)

When European and "​offshore" money fund assets -- those domiciled in places like Dublin, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.​S. list, except for Goldman moving up to No. 4, and Western Asset appearing on the list at No. 10 (​displacing Wells Fargo from the Top 10). Looking at the largest Global Money Fund Manager Rankings, the combined market share assets of our MFI XLS (​domestic U.​S.) and our MFI International ("​offshore"), the largest money market fund families are: Fidelity ($​401.​2 billion), JPMorgan ($​368.​5 billion), BlackRock ($​308.​3 billion), Goldman Sachs ($​217.​2 billion), and Federated ($​203.​8 billion). Dreyfus/​BNY Mellon ($​189.​4B), Vanguard ($​172.​3B), Schwab ($​153.​7B), Morgan Stanley ($​133.​5B), and Western ($​122.​1B) round out the top 10. These totals include offshore US Dollar funds, as well as Euro and Pound Sterling (​GBP) funds converted into US dollar totals. (​Note that big moves in the dollar have recently caused volatility in Euro and Sterling balances, which are converted back into USD.)

Finally, our May 2015 Money Fund Intelligence and MFI XLS show that yields remained largely unchanged in April. Our Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 858), remained at 0.​02% for both the 7-​Day Yield and the 30-​Day Yield (​annualized, net) Average. The Gross 7-​Day Yield went up to 0.​15% from 0.​14%. Our Crane 100 Money Fund Index shows an average 7-​Day Yield and 30-​Day Yield of 0.​03%, the same as last month. Also, our Crane 100 shows a Gross 7-​Day Yield of 0.​18% (​unchanged) and a Gross 30-​Day Yield of 0.​18% (​up from 0.​17%). For the 12 month return through 4/​30/​15, our Crane MF Average returned 0.​01% (​down from 0.​02%) and our Crane 100 returned 0.​02% (​unchanged).

Our Prime Institutional MF Index (​7-​day) yielded 0.​04% (​unchanged), while the Crane Govt Inst Index was at 0.​02% (​unchanged). The 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 7-​Day Yields for these indexes were: Prime Inst 0.​22% (​up from 0.​21%), Govt Inst 0.​12% (​unchanged), Treasury 0.​07%, and Tax Exempt 0.​12% (​up from 0.​09%) in April. The Crane 100 MF Index returned on average 0.​00% for 1-​month, 0.​01% for 3-​month, 0.​01% for YTD, 0.​02% for 1-​year, 0.​03% for 3-​years (​annualized), 0.​05% for 5-​year, and 1.​48% for 10-​years. (Contact us if you'​d like to see our latest MFI XLS or Crane Indexes file.)

​

Crane Data released its May Money Fund Portfolio Holdings Monday, and our latest collection of taxable money market securities, with data as of April 30, 2015, shows jumps in Other (​Time Deposits) and CP, and a plunge in Repo and Treasuries. Money market securities held by Taxable U.​S. money funds overall (​those tracked by Crane Data) decreased by $​49.​3 billion in April to $​2.​404 trillion, after dropping $​19.​2 billion in March and $​52.​1 billion in February. In the seesaw battle between the two, Repos remained the largest portfolio segment ahead of CDs. Treasuries stayed in third place, followed by Commercial Paper. Agencies were fifth, followed by Other (​Time Deposits), then VRDNs. Money funds' European-​affiliated securities represented 29.​3% of holdings, up from 21.​4% the previous month as holdings of Fed RRP repo plummeted from their quarter-​end peak. Below, we review our latest Money Fund Portfolio Holdings statistics. (Note: We also added a new "Holdings Reports Funds Module" to our "Reports & Pivot Tables" lineup. The new file allows user to choose funds (​pick a fund then click its ticker) and show Performance alongside Composition, Country breakout, Largest Holdings and Fund Information.)

Among all taxable money funds, Repurchase agreements (​repo) decreased $​113.​6 billion (​18.​6%) to $​516.​8 billion, or 21.​5% of assets, after increasing $​98.​7 billion in March and $​10.​8 billion in February. Certificates of Deposit (​CDs) were up $​1.​7 billion (​0.​3%) to $​513.​3 billion, or 21.​4% of assets, after dropping $​37.​4 billion in March and $​7.​4 billion (​1.​3%) in February. Treasury holdings decreased $​45.​6 billion (​10.​0) to $​413.​0 billion, or 17.​2% of assets, while Commercial Paper (​CP) jumped $​16.​5 billion (​4.​5%) to $​386.​2 billion, or 16.​1% of assets. Government Agency Debt increased $​2.​4 billion (​0.​7%) to $​334.​8 billion, or 13.​9% of assets. Other holdings, primarily Time Deposits, jumped $​85.​4 billion to $​216.​4 billion, or 9.​0% of assets. VRDNs held by taxable funds decreased by $​4.​0 billion to $​23.​6 billion (​1.​0% of assets).

Among Prime money funds, CDs still represent over one-​third of holdings with 34.​4% (​up from 34.​1% a month ago), followed by Commercial Paper (​25.​9%). The CP totals are primarily Financial Company CP (​15.​1% of holdings), with Asset-​Backed CP making up 5.​7% and Other CP (​non-​financial) making up 5.​1%. Prime funds also hold 6.​5% in Agencies (​up from 5.​6%), 5.​0% in Treasury Debt (​down from 5.​7%), 4.​7% in Other Instruments, and 5.​6% in Other Notes. Prime money fund holdings tracked by Crane Data total $​1.​492 trillion (​down from $​1.​502 trillion last month), or 62.​1% of taxable money fund holdings' total of $​2.​404 trillion.

Government fund portfolio assets totaled $​441 billion in April, down from $​458 billion in March, while Treasury money fund assets totaled $​472 billion in April, down from $​494 billion at the end of March. Government money fund portfolios were made up of 54.​1% Agency Debt, 24.​9% Government Agency Repo, 3.​3% Treasury debt, and 17.​0% in Treasury Repo. Treasury money funds were comprised of 68.​7% Treasury debt, 30.​7% Treasury Repo, and 0.​6% in Government agency, repo and investment company shares. Government and Treasury funds combined total $​913 billion, or 37.​9% of all taxable money fund assets.

European-​affiliated holdings rose $​172.​5 billion in April to $​697.​8 billion (​among all taxable funds and including repos); their share of holdings jumped to 29.​0% from 21.​4% the previous month. Eurozone-​affiliated holdings increased $​72.​3 billion to $​378.​7 billion in April; they now account for 15.​8% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $​2.​7 billion to $​286.​1 billion (​11.​9% of the total). Americas related holdings fell $​225.​0 billion to $​1.​417 trillion, and now represent 59.​0% of holdings. These moves are primarily the result of the unwinding of the quarter-​end shift away from CDs, TDs and dealer repo, and into Fed repo.

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements (​down $​138.​9 billion to $​253.​7 billion, or 10.​6% of assets), Government Agency Repurchase Agreements (​up $​26.​6 billion to $​174.​0 billion, or 7.​2% of total holdings), and Other Repurchase Agreements (​down $​1.​3 billion to $​89.​1 billion, or 3.​7% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​up $​12.​9 billion to $​225.​9 billion, or 9.​4% of assets), Asset Backed Commercial Paper (​down $​5.​0 billion to $​84.​6 billion, or 3.​5%), and Other Commercial Paper (​up $​6.​5 billion to $​75.​7 billion, or 3.​1%).

The 20 largest Issuers to taxable money market funds as of April 30, 2015, include: the US Treasury ($​413.​0 billion, or 18.​9%), Federal Home Loan Bank ($​205.​3B, 9.​4%), Federal Reserve Bank of New York ($​106.​2B, 4.​8%), Wells Fargo ($​69.​2B, 3.​2%), Credit Agricole ($​68.​4B, 3.​1%), BNP Paribas ($​67.​3B, 3.​1%), JP Morgan ($​60.​0B, 2.​7%), Bank of America ($​56.​8B, 2.​6%), RBC ($​56.​2B, 2.​6%), Bank of Nova Scotia ($​55.​7B, 2.​5%), Bank of Tokyo-​Mitsubishi UFJ Ltd ($​53.​5B, 2.​4%), Barclays PLC ($​50.​5B, 2.​3%), Federal Home Loan Mortgage Co ($​49.​4B, 2.​3%), Credit Suisse ($​49.​3B, 2.​2%), Toronto-​Dominion Bank ($​44.​0B, 2.​0%), Federal Farm Credit Bank ($​42.​8B, 2.​0%), Sumitomo Mitsui Banking Co ($​42.​1B, 1.​9%), Natixis ($​41.​9B, 1.​9%), Mizuho Corporate Bank Ltd. ($​37.​3B, 1.​7%), Federal National Mortgage Association ($​34.​2B, 1.​69%), and Bank of Montreal ($​34.​2B, 1.​9%).

In the repo space, Federal Reserve Bank of New York'​s RPP program issuance (​held by MMFs) remained the largest program with $​106.​2B, or 20.​5%, but it was down precipitously from $​316.​9B, or 50.​3% of the repo market a month ago. Of the $​106.​2 billion, all of it was in Overnight Repo. The 10 largest Fed Repo positions among MMFs on 4/​30 include: JP Morgan US Govt ($​9.​8B), Morgan Stanley Inst Lq Govt ($​6.​8B), State Street Inst Lq Res ($​6.​7B), BlackRock Lq T-​Fund ($​6.​0B), UBS Select Treas ($​5.​8B), First American Govt Oblg ($​5.​0B), Northern Trust Trs MMkt ($​5.​0B), Federated Trs Oblg ($​3.​9B), State Street Inst US Govt ($​3.​5B), and Morgan Stanley Inst Lq Trs ($​3.​5B). The 10 largest Repo issuers (​dealers) (​with the amount of repo outstanding and market share among the money funds we track) include: Federal Reserve Bank of New York ($​106.​2B, 20.​5%), Bank of America ($​46.​5B, 9.​0%), BNP Paribas ($​40.​3B, 7.​8%), Wells Fargo ($​35.​8B, 6.​9%), Credit Agricole ($​32.​0B, 6.​2%), Credit Suisse ($​29.​9B, 5.​8%), Barclays PLC ($​29.​3B, 5.​7%), JP Morgan ($​29.​2B, 5.​6%), Societe Generale ($​24.​1B, 4.​7%), and Citi ($​20.​1B, 3.​9%).

The 10 largest issuers of “​credit” -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: Bank of Tokyo-​Mitsubishi UFJ Ltd ($​46.​7B, 4.​8%), Sumitomo Mitsui Banking Co ($​42.​1B, 4.​3%), Bank of Nova Scotia ($​38.​8B, 3.​9%), Toronto Dominion Bank ($​37.​7B, 3.​8%), RBC ($​37.​6B, 3.​8%), Credit Agricole ($​36.​4B, 3.​7%), Natixis ($​34.​2B, 3.​5%), Wells Fargo ($​33.​4B, 3.​4%), Mizuho Corporate Bank Ltd. ($​32.​0B, 3.​3%), and DnB NOR Bank ASA ($​32.​0B, 3.​3%).

The 10 largest CD issuers include: Bank of Tokyo-​Mitsubishi UFJ Ltd ($​37.​5B, 7.​4%), Sumitomo Mitsui Banking Co ($​34.​4B, 6.​7%), Toronto-​Dominion Bank ($​34.​2B, 6.​7%), Mizuho Corporate Bank Ltd ($​31.​2B, 6.​1%), Bank of Nova Scotia ($​28.​4B, 5.​6%), Bank of Montreal ($​27.​4B, 5.​7%), Wells Fargo ($​24.​7B, 4.​8%), Natixis ($​19.​7B, 3.​9%), RBC ($​18.​6B, 3.​6%), and Rabobank ($​18.​6B, 3.​8%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: JP Morgan ($​22.​4B, 7.​0%), Commonwealth Bank of Australia ($​17.​0B, 5.​3%), Westpac Banking Co ($​16.​8B, 5.​3%), RBC ($​16.​1B, 5.​0%), Lloyds TSB Bank PLC ($​11.​7B, 3.​7%) National Australia Bank Ltd ($​11.​4B, 3.​6%), BNP Paribas ($​10.​9B, 3.​4%), Australia & New Zealand Banking Group Ltd ($​9.​9B, 3.​1%), HSBC ($​9.​8B, 3.​1%), and Bank of Nova Scotia ($​9.​5B, 3.​0%).

The largest increases among Issuers include: Credit Agricole (​up $​43.​5B to $​68.​4B), Barclays PLC (​up $​29.​9B to $​50.​6B), DnB NOR Bank ASA (​up $​18.​7B to $​32.​0B), Lloyds TSB Bank PLC (​up $​15.​6B to $​22.​4B), Credit Mutuel (​up $​13.​3B to $​20.​4B), Federal Home Loan Bank (​up $​12.​8B to $​205.​3B), Swedbank AB (​up $​12.​2B to $​28.​3B), Natixis (​up $​11.​2B to $​41.​9B), Credit Suisse (​up $​9.​2B to $​49.​3B), and Bank of America (​up $​8.​6B to $​56.​8B).

The largest decreases among Issuers of money market securities (​including Repo) in April were shown by: Federal Reserve Bank of New York (​down $​210.​7B to $​106.​2B), US Treasury (​down $​45.​6B to $​413.​0B), Federal Home Loan Mortgage Co. (​down $​6.​9B to $​49.​4B), Rabobank (​down $​6.​2B to $​22.​8B), Federal National Mortgage Association (​down $​4.​8B to $​34.​2B), Bank of Tokyo-​Mitsubishi UFJ Ltd. (​down $​2.​7B to $​53.​5B), Canadian Imperial Bank of Commerce (​down $​2.​7B to $​17.​3B), Australia & New Zealand Banking Group Ltd (​down $​2.​6B to $​15.​7B), JP Morgan (​down $​2.​2B to $​68.​0B), and Sumitomo Mitsui Banking Co. (​down $​1.​4B to $​42.​1B).

The United States remained the largest segment of country-​affiliations; it represents 49.​4% of holdings, or $​1.​186 trillion (​down $​227B). France (​10.​8%, $​242.​2B) vaulted into second, jumping ahead of Canada (​9.​5%, $​228.​5B) and Japan (​7.​5%, $​179.​2B). The U.​K. (​5.​3%, $​127.​6B) moved up to fifth, while Sweden (​3.​9%, $​93.​4B) jumped to sixth. Australia (​3.​5%, $​84.​7B) fell to seventh, from fifth, while The Netherlands (​2.​9%, $​70.​5B) was eighth. Switzerland (​2.​8%, $​66.​3B) and Germany (​2.​1%, $​50.​8B) round out the top 10 among country affiliations. (​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 April 30, 2015, Taxable money funds held 24.​8% of their assets in securities maturing Overnight, and another 15.​1% maturing in 2-​7 days (​39.​9% total matures in 1-​7 days). Another 20.​2% matures in 8-​30 days, while 13.​2% matures in 31-​60 days. Note that almost three-​quarters, or 73.​4% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-​90 days, holds 11.​4% of taxable securities, while 12.​2% matures in 91-​180 days and just 3.​1% matures beyond 180 days.

Crane Data'​s Taxable MF Portfolio Holdings (​and Money Fund Portfolio Laboratory) were updated Monday, and our MFI International "​offshore" Portfolio Holdings and Tax Exempt MF Holdings will be released later this week. Visit our Content center to download files or visit our Portfolio Laboratory to access our "​transparency" module. Contact us if you'​d like to see a sample of our latest Portfolio Holdings Reports or our new Holdings Reports Issuer Module.

​

Crane Data, publisher of Money Fund Intelligence, celebrates its 9th birthday this month. As we wrote in our most recent issue of MFI, we'​d like to take a moment to review our progress and update you on our efforts, which include growing our conference business and extending our coverage beyond money market funds. Crane Data was launched in May 2006 by money fund expert Peter Crane and technology guru Shaun Cutts to bring faster, cheaper and cleaner information to the money fund space. We began with our MFI newsletter and have grown to offer a full range of daily and monthly spreadsheets, news, database query systems and reports on U.​S. and "​offshore" money funds and other cash investments. (Note: We also wanted to remind you to make hotel reservations -- we expect the hotel to be sold out soon -- and to register for our upcoming Money Fund Symposium, June 24-​26 in Minneapolis, and to start making plans for our European Money Fund Symposium, Sept. 17-​18 in Dublin.)

As we first mentioned in our May MFI, our big new product addition over the past year is Bond Fund Intelligence, a monthly newsletter that tracks the bond fund universe, with a focus on the ultra-​short and short-​term bond fund sector. BFI includes news, features, and performance data on over 300 (​and growing) of the largest bond funds and ETFs. We also publish a fund "​profile" interview each month with a bond fund portfolio manager. As with MFI, Crane Data offers an Excel "​complement" with even more performance, data and rankings, Bond Fund Intelligence XLS. BFI includes our new Crane Bond Fund Intelligence Indexes, which now provide benchmarks for various bond market segments, including a new Conservative Ultra-​Short BFI Index, a more focused benchmark for the more conservative funds in the space just beyond money market funds.

The BFI newsletter was launched due to the changing nature of the money fund and cash space. With the SEC'​s money fund reforms making some aspects of the cash marketplace more restrictive, we saw an opportunity to cover the growing space just beyond money funds, the ultra short and short-​term bond fund segment. We listened to feedback from clients and money managers who say that area will be more attractive in an era of money fund reforms and rising interest rates. (​Watch for our May issue of BFI later this week, and let us know if you'​d like to see the latest edition of BFI and BFI XLS.)

Crane Data President & Publisher Peter Crane comments, "While our first love and loyalty is of course to the money fund segment, our clients -- which now include several hundred asset managers, issuers, dealers, servicers, regulators and investors -- wanted to hedge their bets too and to gather more intelligence on this growing market segment. We look forward to working with readers, bond fund providers and others in building out this new product line. We plan to eventually track Bond Fund Portfolio Holdings and launch a Bond Fund Symposium conference in this sector, though these both will take time."

Crane Data has also continued to see great success in the money fund conference business. Our 7th Annual Money Fund Symposium will take place in Minneapolis, June 24-​26, and we again expect to host the largest gathering of cash investors in the world. We'​re also preparing for our 3rd annual European Money Fund Symposium, which be in Dublin Sept. 17-​18, 2015 (​the preliminary agenda is now available and registrations are now being taken for this event), and our next Money Fund University, which will be Jan. 21-​22, 2016, in Boston.

The past 9 years have brought dramatic change to the money fund industry and no doubt more is yet to come. But money funds continue to hold fast, and we think higher rates will soon bring higher assets. In our MFI update, we show the annual asset totals of money funds against our flagship Crane 100 Money Fund Index (​the average of the 100 largest taxable funds). During our first two years, we saw assets increase by over $​1.​5 trillion and yields drop from almost 5% to under 1%. During the next three years, money fund assets declined by over $​1.​0 trillion, while yields settled just above zero. The past 4+ years, ​we'​ve seen both assets and yields virtually flat, stuck around $​2.​6 trillion and 0.​03%, respectively.

As for Crane Data, we continue to grow. We now have 14 employees and topped $​1.​1 million in annual revenue in 2014. We added a new Editor, Dave Kovaleski, who is now writing much of the commentary, and we continue to rely on our core of veteran employees -- Kaio Barbosa, who oversees our Money Fund Portfolio Holdings collection, and Statistics Editors Diana Bucaro, Natalia Mendonca, and Thereza Alves. We hope to continue to deliver good information at reasonable prices, and we thank you for your continued support! Please let us know if you have any feedback or requests. We'​re always happy to discuss. Sincerely, Pete Crane

​

The matter of Treasury Bill supply for the money markets appears to be on the radar of the U.​S. Treasury, judging by a recent report prepared for the Treasury Borrowing Advisory Committee. The "​Charge 1" TBAC report examines current developments in the market, such as regulations and policy, which have "the potential to change significantly the supply and demand in the market for short-​end, high-​quality assets where Treasury Bills are centric." This, of course, includes money markets, where the there is concern among asset managers that supply may be strained should the expected migration of assets from Prime to Government take place once the new SEC rules kick in in October 2016. The TBAC report concludes that it should consider increasing the level of T-​Bills.

The report says, "Treasury bill supply as a percentage of the total Treasury debt outstanding is currently about 11%, a multi-​decade low. At the same time, with $​1.​4 trillion in Treasury bills outstanding, the total volume of Treasury bills outstanding remains near historically high levels. What are the drivers of potential demand for high-​quality, short-​dated securities? Given these considerations, should the Treasury either increase or decrease Treasury bill issuance in the coming year?"

On the impact of money fund reforms it says, "Investors are reassessing Prime funds as a liquidity vehicle, with estimates of a $​300 billion reallocation from Prime to Government funds. Funds are in the process of announcing changes to structure, most notably with Fidelity re-​classifying certain Prime funds as Government funds." It continues, "​Money funds by definition and rule own short-​duration assets. Bills and short coupons fulfill requirements for assets that offer daily and weekly liquidity."

What are the implications? "​Increased demand for shorter-​maturity and short-​duration Treasury assets, while prime funds no longer offer a true liquidity vehicle. With some funds preemptively announcing a re-​designation of prime funds as government-​only, combined with expected investor reallocation ahead of implementation, analysts estimate up to $​300 billion of potential prime-​to-​government flows in the near future." It adds, "RRP supply should have a major impact on the demand for bills. RRP also should help re-​shape the system in a way that might guarantee strong T-​bill demand in the future, especially if the Fed shrinks its balance sheet."

The TBAC says, "In order to satisfy demand and ensure market function, we suggest that the Treasury at least maintains the current level of T-​bills outstanding over the next 12 months. This would require either maintaining a larger cash balance or reducing coupon issuance. If possible, the Treasury should consider increasing the level of T-​bills outstanding. Otherwise, T-​bills outstanding would likely decline over the coming quarters as funding needs will be smaller than cash raised by coupon issuance. Demand for short-​term, HQLA is increasing as a result of structural market changes stemming from bank capital rules, 2a-​7 reform, and growing clearing/ margin needs. T-​bill substitutes are either stagnating or declining in size as a result of developments such as shrinking bank balance sheets or have drawbacks such as failing to offer truly comparable liquidity."

They explain, "These dual dynamics suggest that appetite exists for greater T-​bill supply and that there is relatively little risk of crowding out other short-​term products. From the Treasury'​s perspective, increasing T-​bill issuance now could help it maintain a larger cash balance and would afford flexibility in navigating uncertain monetary policy periods ahead. The Fed'​s reverse repo facility is providing a key vehicle for front-​end investors, in the event of a stress event or if the facility isn'​t sufficiently large to absorb funds, potentially overwhelming flows into T-​bills and resulting in dislocations."

The TBAC report continues, "​The Treasury could approach increasing supply either by increasing current auction sizes or introducing regular 1-​week and 2-​month issuance. If the Treasury increases current auction sizes, we recommend that those adjustments be made primarily to 4-​week and 13-​week bills, as structural, regulatory-​driven demand is highest for shorter-​dated paper. Alternatively, considering new auction tenors could provide additional points of price discovery, enhancing liquidity and avoiding ballooning individual auction sizes, particularly down the road as deficits grow."

Under the subhead, "Pros and Cons of More T-​Bill Issuance as a Portion of Treasury Debt Issuance," it lays out the good and the bad. "Pros of issuing more T-​Bills: T-​bills offer lower borrowing costs for taxpayers on average over time; Demand is likely to be higher as banks' need for short-​term HQLA is likely to increase; Demand is likely to be higher as new Money Fund regulations increase demand for short-​end government paper; Fewer bill substitutes are likely as outstanding amounts of other short-​term alternatives are generally flat or shrinking, which also poses little risk of T-​bills crowding out other HQLA; The Treasury could maintain a higher cash balance while maintaining coupon sizes."

The cons: "​Rollover risk in the future may be more challenging; If more bills are issued in lieu of long-​term Treasury benchmarks, the liquidity of fixed income assets may be significantly reduced; Balance sheet constraints (​leverage ratios) may make market making more difficult, subsequently challenging bill liquidity, in particular around quarter-​end."

Yesterday'​s Wall Street Journal covered the news in the story, "Treasury Plans More Short-​Term Debt." It says, "The U.​S. Treasury Department said it plans to increase the supply of short-​term debt, in a bid to ease investors' concerns about difficulty trading in global bond markets. Increasing the issuance of U.​S. Treasury bills, which mature in a year or less, likely will be good news for the market for short-​term loans known as repurchase agreements, or repos."

The article adds, "Any commitment from the Treasury to keep money markets stable and functioning is a big help," said Kenneth Silliman, New York-​based head of short-​term rates trading at TD Securities Inc. Treasury'​s plans to issue more bills comes as there is a growing scarcity of high-​quality, short-​term debt instruments used widely on Wall Street.... Treasury bills are widely held by the world'​s most conservative investors, including central banks and money-​market funds. A normal functioning of the market is vital to the health of the broad money markets and the U.​S. economy."

It goes on, "The announcement from Treasury is partly motivated by their recognition of the important special role T-​bills play," said Andrew Hollenhorst, U.​S. short-​term interest rate strategist at Citigroup Global Markets Inc.." Further, it adds, "​Some money-​fund managers are skeptical about the effect of the Treasury'​s plan.... There simply will not be enough government paper" to sate asset managers, said Joseph D’​Angelo, head of Prudential Fixed Income'​s money-​markets team."

​

The May issue of Crane Data'​s Money Fund Intelligence was sent out to subscribers Thursday morning. The latest edition of our flagship monthly newsletter features the articles: "Crane Data Celebrates 9 Yrs., Enters Bond Fund Info Market," which marks our 9th anniversary with a look back at the past year, including the launch of our new endeavor, Bond Fund Intelligence; "Schwab & Latest Fund Co. Changes; SEC Answers FAQs," which examines Schwab'​s recent update on their money market funds, recaps all of the fund company announcements since the beginning of the year, and looks at the SEC'​s response to reform FAQs; and "ICI Fact Book Shows Flat Is New Up for Money Funds," which reports on the fund flows and other trends from the ICI'​s 2015 Investment Company Fact Book. We have also updated our Money Fund Wisdom database query system with April 30, 2015, performance statistics, and sent out our MFI XLS spreadsheet earlier this a.​m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our May Money Fund Portfolio Holdings are scheduled to go out on Monday, May 11, and our May Bond Fund Intelligence is scheduled to ship Thursday, May 14. Also, we mention the news of IMMFA'​s new Chair below.

The lead article in MFI on Crane Data'​s 9th anniversary says, "Crane Data, publisher of Money Fund Intelligence, celebrates its 9th birthday this month. As we'​ve done in past May issues, we'​d like to take a moment to review our progress and update you on our efforts, which include extending our coverage beyond money market funds. Crane Data was launched in May 2006 by money fund expert Peter Crane and technology guru Shaun Cutts to bring faster, cheaper and cleaner information to the money fund space. We began with our MFI newsletter and have grown to offer a full range of daily and monthly spreadsheets, news, database query systems and reports on U.​S. and "​offshore" money funds and other cash investments."

It continues, "Our big new addition over the past year is Bond Fund Intelligence, a monthly newsletter that tracks the bond fund universe, with a focus on the ultra-​short and short-​term bond fund sector. BFI includes news, features, and performance data on over 300 (​and growing) of the largest bond funds and ETFs. We also publish a fund "​profile" interview each month with a bond fund portfolio manager. As with MFI, Crane Data also offers an Excel complement with even more performance, data and rankings, Bond Fund Intelligence XLS. BFI includes our new Crane Bond Fund Intelligence Indexes, which now provide benchmarks for various bond market segments, including a new Conservative Ultra-​Short BFI Index, a more focused benchmark for the more conservative funds in the space just beyond money market funds."

In our middle column, we look at how Schwab and others are adapting to SEC reforms, as well as the SEC'​s FAQs. It reads, "Charles Schwab Investment Management became the latest money market fund complex to issue an update on how it plans to adapt to the SEC reforms. Since the beginning of the year, 10 of the 20 largest money market fund managers have announced changes or updates to their MMF lineups. In this article, we not only review Schwab'​s plans, but we also recap the changes that have happened so far in 2015. Also, the SEC came out with answers to Frequently Asked Questions about MF Reforms, though these mainly dealt with very technical and minor issues. We also briefly review these."

It explains, "​We have reported on all of the announcements that have come to our attention over the past several months. Of the 20 largest money fund complexes, half have issued updates, including the four largest -- Fidelity, JP Morgan, BlackRock, and Federated. Here is a look at the changes (​and dates) announced so far." (​We also list the 15 largest managers with their assets by type in the article.)

The third article says, "ICI'​s new "​2015 Investment Company Fact Book" revealed some interesting trend data on money market fund flows in 2014. For instance, despite landmark SEC reforms, money funds saw overall inflows in 2014. What'​s more, institutional MMFs, which were hit hardest by reforms, saw significant inflows, while retail funds saw outflows. In addition, corporate investment in money fund assets was stable last year."

Crane Data'​s May MFI XLS, with April 30, 2015, data shows total assets plunging in April, the fourth monthly drop in a row, down $​89.​3 billion to $​2.​487 trillion, after falling $​20.​9 billion in March, $​1.​6 billion in February, and $​44.​6 billion in January. Our broad Crane Money Fund Average 7-​Day Yield and 30-​Day Yield remained at 0.​02%, while our Crane 100 Money Fund Index (​the 100 largest taxable funds) stayed at 0.​03% (​7-​day and 30-​day). On a Gross Yield Basis (​before expenses were taken out), funds averaged 0.​15% (​Crane MFA, up from 0.​14 last month) and 0.​18% (​Crane 100, same as last month) on an annualized basis for both the 7-​day and 30-​day yield averages. Charged Expenses averaged 0.​13% (​unchanged) and 0.​15% (​unchanged) for the two main taxable averages. The average WAMs for the Crane MFA and the Crane 100 were 39 and 41 days, respectively, both down 2 days from last month. (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

In other news, the U.​K.-​based Institutional Money Market Fund Association confirmed Reyer Kooy as the new Chair of IMMFA. The statement reads, "Reyer is head of Institutional Liquidity Management, EMEA and Asia business, for Deutsche Asset & Wealth Management (​DeAWM) and has been with Deutsche for nearly 5 years. Prior to joining DeAWM, Reyer was head of EMEA for a similar business at Credit Suisse, and also worked at JP Morgan for 12 years. Reyer has represented DeAWM on the Board of IMMFA since June of 2012 and also acted as its Treasurer.

Outgoing Chair Jonathan Curry of HSBC Global Asset Management was thanked for his 3 years' service as Chair of IMMFA, which followed an earlier 3 year spell as Chair of IMMFA'​s Investment Committee. Curry comments, "​The past 3 years have been challenging for money market funds. I believe IMMFA has been instrumental in ensuring that the views of the investors and industry have been heard. There is still work to do, but we look forward to continuing the Association'​s work in this key area, supporting our Members."

​

Will the expected migration of assets from Prime to Government money market funds be thwarted by the availability of supply? Fidelity Investments, which will convert three Prime Retail funds to Government MMFs (​see our Feb. 2 "​News") including the $​110 billion Fidelity Cash Reserves, says the market has more than enough capacity to handle the inflows. They recently published a paper entitled, "Government Money Market Mutual Funds: An Attractive Option for Investors, which explains that the sector is poised for growth given the SEC'​s 2014 money market reforms and can handle any inflows. However, in his most recent "Short-​Term Market Outlook and Strategy," J.​P. Morgan Securities money market strategist Alex Roever and his team see it differently.

Fidelity estimates the size of the "Short-​Term Government Bond Universe" at about $​6.​6 trillion. Of that $​6.​6 trillion, $​1.​5 trillion is in Treasury Bills, $​1.​6 trillion is in Treasury Coupons, and $​164 billion is in Treasury Floating Rate Notes. This totals roughly $​3.​3 trillion within the money fund-​eligible Treasury space. Fidelity also cites the size of the Repo market at $​2.​0 trillion, and the Reverse Repo at $​397 billion. Another $​602 billion in in Agency Discount Notes, plus $​357 billion in in Agency Coupons ($​959B in total Agencies).

Crane Data shows Treasury Institutional MMFs totaling $​349 billion, Government Inst MMFs totaling $​331 billion, and Treasury and Retail MMFs (​combined) totaling a $​256 billion So the total of the Govt and Treasury MMF sector is currently $​913 billion. The paper explains, "The depth and breadth of the $​6.​6 trillion short-​term government securities market provides a liquid investment universe for government MMFs. Within this high-​quality sector, government MMF investments represented approximately 14% of the assets at the end of 2014."

Fidelity concludes, "The 2014 money market reform rules may increase the demand for government MMFs, which could also increase the demand for government securities. If this is the case, it is possible that the yield spread between prime MMFs and government MMFs may increase. However, it is unlikely to change the value proposition that government MMFs will offer."

Speaking earlier this year, Fidelity'​s President of Fixed Income Nancy Prior (​see our March 13 News," explained, "The government securities market is enormous, at close to $​7T. So each $​100B in incremental demand represents just 1.​5% of the available supply. While we do not know other firms' plans, let'​s just use Moody'​s estimate of an additional $​100-$​200 billion of assets' converting to government from prime, which may end up being high. Taking the middle of that range -- $​150 billion -- and adding that to Fidelity'​s proposed conversions gets Moody'​s total estimate to $​280 billion. That additional $​280 billion in demand represents only about 4% of the total supply of government securities. So, standing where we stand right now, we believe that the converted MMF assets within the industry will have no trouble finding investments in the government market.... There continues to be adequate supply for prime MMFs."

But JPM'​s Roever, and co-​authors Teresa Ho and John Iborg, believe that supply in the government space will be an issue if demand for government MMFs spikes as anticipated. They write in a section entitled, "Government MMFs: Demand growth in a world of limited supply," "​In previous notes, we'​ve discussed how money market reform and regulatory induced deposit shedding by large banks is likely to push a large amount of cash towards the government money fund space over the 12 to 18 months. We have argued that demand for government funds could rise by $​700-​900bn before the end of 2016. Such a large shift of cash will most certainly complicate the market structure for short-​term government and agency securities, where front-​end demand has remained strong and supply constrained for quite some time."

Roever and Co. explain, "​To start, we performed a high level analysis to see how demand might increase across asset type under different government MMF inflow scenarios, holding current portfolio allocation percentages constant. Not surprisingly, our results project stark implied increases in demand across Treasuries, agencies and repo. However, it is unlikely that these increases will be met by equal increases in supply. While it is unclear how outstandings will change across asset classes from now until the end of 2016, we expect that the supply in the short-​term government and agency markets (​ex Fed RRP) will decline."

They continue, "Given that supply will not grow in tandem with demand, we think that government MMF complexes will have three options to weigh as they face large inflows. First, government funds may decide simply not to take in extra cash once marginal investible supply is no longer available. This situation occurred for several funds during 2011, when the Eurozone crisis prompted a large flight to quality of close to $​200bn into government MMFs. Obviously, government funds closing to new money would be bad news for investors, as few alternatives would be available for them to put their cash. Investors could look beyond the money markets in this case, but options that meet their specific liquidity needs may be scarce."

JPM'​s piece tells us, "Secondly, to ensure that they get invested, government funds will have to bid more aggressively for the available float of product that is already outstanding, effectively becoming larger owners of the total market. Needless to say, this will exert an immense downward pressure on yields, especially in the shrinking product sectors, as government funds are already significant players across markets. During the 2011 episode, government funds turned first to bills and Treasury repo to meet their supply needs, before steadily increasing their participation within Treasury coupons and agency discos. On net, government funds increased their market share by an average of 5% across these products."

Further, they write, "Lastly and unlike 2011, many government funds will have the option of using the Fed'​s reverse repo program. Government funds that are RRP counterparties currently have about 27% of their assets invested at the facility. Furthermore, with the Fed likely to begin raising interest rates at the same time large inflows occur, it is likely that the rate on the RRP will be higher than other government asset types -- making it a more attractive choice for eligible counterparties. The remaining money funds and other front-​end participants who are not RRP counterparties, are indirectly dependent on the size of the fed RRP -- the more RRP that is available for the counterparties should result in more supply and higher yields for the non-​counterparties as well, although likely yields below the RRP level."

J.​P. Morgan adds, "All told, we do not believe that there will be an ample amount of supply of bills and similar instruments available to meet demand in the short-​term government/​agency space once sizable inflows into government MMFs begin. In a best case scenario, the Fed would raise the usage cap on the RRP so that it could further serve as a source of supply to MMFs who are counterparties and hopefully leave more government securities available for the non-​counterparties."

Finally, as we approach October 2016, market participants will continue to monitor and predict potential inflows into government money market funds, and potential shifts in Government supply. Barclays money market strategist Joseph Abate said he expects the Fed to temporarily remove the cap on the overnight RRP at rate life-​off this fall. "This could easily fulfill any increased repo and bill demand caused by money funds reform," he writes. (​Watch for the Treasury'​s Quarterly Refunding Statement Wed. a.​m., and their Quarterly Refuning Press Briefing for some clues as to the future level of Treasury bill supplies.)

​

The Investment Company Institute released its "2015 Investment Company Fact Book" yesterday afternoon, ahead of the Institute'​s General Membership Meeting (​GMM) this week in Washington, May 6-​8. As usual, the "Fact Book" is loaded with useful statistics and analysis of mutual funds in general, and of money market mutual funds in particular. In addition to data on fund flows for both Retail and Institutional funds, there is section on the Securities and Exchange Commission'​s landmark 2014 money market fund reforms, as well as commentary on the growth of the Federal Reserve'​s Overnight Reverse Repo Program. Among the most interesting trends, the Fact Book shows money fund assets and corporate investment in money market funds, remaining stable and flat for the third year in a row in 2014. Watch for more coverage, including reviews and excerpts of the myriad charts and tables, in coming days and in the pending May issues of both our Money Fund Intelligence and our new Bond Fund Intelligence.

Under the section, "Demand for Money Market Funds (​on page 48)," the Fact Book says, "In 2014, money market funds received a modest $​6 billion in net inflows. However, similar to the demand for long-​term funds, demand for money market funds was not uniform throughout 2014. ` In particular, outflows from money market funds were concentrated in the first four months of 2014, during which investors redeemed $​143 billion, on net. Tax payments by corporations in mid-​March and individuals in mid-​April were likely key drivers behind these redemptions. Outflows abated and money market funds received net inflows of $​164 billion over the second half of the year. Most of these flows went to institutional share classes of money market funds."

It continues, "Institutional money market funds -- used by businesses, pension funds, state and local governments, and other large-​account investors -- had a net inflow of $​37 billion in 2014, following a net inflow of $​27 billion in 2013. Some of the cash generated by rising corporate profits was likely held in money market funds and bank deposits. Institutions rely more heavily on money market mutual funds to manage their cash today than they did in the early 1990s. For example, in 2008, U.​S. nonfinancial businesses held 37 percent of their cash balances in money market funds, up from just 6 percent in 1990. While this portion has declined since the 2007–​2008 financial crisis, it remains substantial, measuring 23 percent in 2014."

ICI explains, "Part of this increased demand reflects the outsourcing of institutions' cash management activities, which were commonly done in-​house, to asset managers. Depending on the size of the cash position, the asset manager may create a separate account for an institutional client with direct ownership of money market instruments or they may invest some of the cash in money market funds."

On the Retail money market fund sector the Fact Book says, "Individual investors tend to withdraw cash from money market funds when the difference between yields on money market funds and interest rates on bank deposits narrows or becomes negative. Because of Federal Reserve monetary policy, short-​term interest rates remained near zero in 2014. Yields on money market funds, which track short-​term open market instruments such as Treasury bills, also hovered near zero and remained below yields on money market deposit accounts offered by banks. Retail money market funds, which principally are sold to individual investors, saw a net outflow of $​31 billion in 2014, following a net outflow of $​12 billion in 2013."

Under the subhead, "Recent Reforms to Money Market Funds," it explains, "The U.​S. Securities and Exchange Commission (​SEC) has amended Rule 2a-​7, a regulation governing money market funds, several times since 1983, placing greater limits on the maturity and credit quality of the securities that the funds hold, adding diversification requirements, requiring minimum levels of liquidity for the funds, and increasing their disclosure requirements. In response to the financial crisis, the SEC significantly reformed Rule 2a-​7 in 2010. Among other things, these reforms required money market funds to hold a certain amount of liquidity and imposed stricter maturity limits. One outcome of these provisions is that prime funds have become more like government money market funds. To a significant degree, prime funds adjusted to the SEC'​s 2010 amendments to Rule 2a-​7 by adding to their holdings of Treasury and agency securities."

ICI writes, "They also boosted their assets in repurchase agreements (​repos). A repo can be thought of as a short term collateralized loan, such as to a bank or other financial intermediary. Repos are collateralized -- typically by Treasury and agency securities -- to ensure that the loan is repaid. Prime fund holdings of Treasury and agency securities and repos have risen substantially as a share of the fund portfolios, from 12 percent in May 2007 to a peak of 36 percent in November 2012. In December 2014, this share was 31 percent of prime fund assets, still more than double the value prior to the financial crisis and subsequent reforms."

On the 2014 MMF Reforms, it comments, "In July 2014, the SEC adopted additional rules for money market funds, further limiting the use of amortized cost for institutional funds that invest in nongovernment securities, and requiring that such funds price their shares to the nearest one-​hundredth of a cent. Additionally, under the July 2014 rules, nongovernment money market fund boards can impose liquidity fees and gates (​a temporary suspension of redemptions) when a fund'​s weekly liquid assets fall below 30 percent of its total assets (​the regulatory minimum). The final rules also include additional diversification, disclosure, and stress testing requirements, as well as updated reporting by money market funds. Because the new rules will not be fully implemented until late 2016, it is not yet clear how the SEC'​s 2014 rules will affect investor demand for money market funds."

On the "Federal Reserve'​s Overnight Reverse-​Repo Facility, ICI'​s 2015 Fact Book says, "​In 2013, in an effort to gradually absorb excess liquidity from the financial system, the Federal Reserve began engaging in a new program of fixed-​rate, full-​allotment, overnight, and term reverse repurchase agreements. The introduction and expansion of the Fed'​s reverse-​repo facilities over the past two years has greatly increased the central bank'​s role as a repo counterparty. Through these facilities, money market funds (​and other market participants) lend money to the Fed overnight or for a specified term. At the end of 2014, the Federal Reserve was the repo counterparty for 52 percent of the $​654 billion in repurchase agreements entered into by taxable money market funds. This share has risen from 29 percent at the end of 2013, the year the program began."

Finally, it says, "​The rise, however, reflects a strong seasonal pattern. Money market fund lending to the Fed tends to spike sharply at quarter-​ends, in large part because of changes in bank regulations, especially in Europe. Historically, European banks have been a major repo counterparty to money market funds. However, European banks have generally become less willing to borrow from U.​S. money market funds due to regulatory pressures, especially at the end of the quarter. Therefore, money market fund lending to the Fed via reverse repo has offset a quarter-​end decline in the share of fund investments in European banks. For example, in December 2013, 31 percent of the repurchase agreements held by taxable money market funds were issued by European banks. By December 2014, that value had fallen to 20 percent."

​

Charles Schwab Investment Management, the 7th largest money market fund manager with $​160.​7 billion in assets, is the latest money market mutual fund complex to issue a statement in response to the SEC'​s pending money market fund reforms. A press release sent out Friday morning entitled, "Charles Schwab Investment Management Issues Statement on Money Market Fund Reform," doesn'​t reveal many specifics in terms of Schwab'​s intentions, but it does say they won'​t impose gates and fees on their government MMFs and will have a full range of MMF offering, including floating NAV funds. Schwab also reaffirmed that they will continue to offer Prime and Municipal sweep options, and, unlike Fidelity with its Cash Reserves funds, won'​t switch their flagship retail Prime funds to government funds.

The release summarizes, "​Schwab Government Money Funds do not plan to adopt a policy to implement Liquidity Fees or Redemption Gates. Retail investors will continue to have access to Schwab Prime, Municipal and Government money market funds with a net asset value (​NAV) that is designed to be constant (​CNAV). `​We are committed to providing capital preservation and liquidity products that will meet the needs of both retail and institutional investors." They say, "​As a leader in money market fund reform, Charles Schwab Investment Management is committed to providing all investors with as much clarity as possible on the impact and implications of the money market fund reform issued by the Securities and Exchange Commission in July, 2014."

It continues, "​We have spent significant time reviewing the amendments and listening to our investors' preferences. We want to assure our retail and institutional shareholders that we will continue to offer a variety of investment options and a robust product lineup that includes Prime, Municipal and Government money market funds. Specifically, retail investors will continue to have access to a lineup of Schwab Prime, Municipal and Government money market funds with a CNAV. For those no longer eligible for our CNAV Prime and Municipal money market funds under the new money market fund reform amendments, we plan to make floating NAV money funds available. At this time, our Board of Trustees has elected not to implement liquidity fees or redemption gates on Schwab Government money market funds."

A spokesperson for Schwab commented to Crane Data (​in response to our questions), "​We are committed to providing our clients a wide array of choices in how they manage their portfolios. Clients in Prime or Municipal MMFs who will be eligible for "​Retail" funds and who continue to meet Schwab'​s MMF Sweep Feature criteria will stay in the Cash Feature they have selected. Should a client be interested in changing their Cash Feature, they are welcome to do so subject to any Money Fund or Schwab eligibility requirements. You should expect to see filings designed to ensure all of our existing Prime and Municipal funds remain "​Retail," as well as filings for new "​Institutional" funds, as appropriate."

Crane Data tracks 31 Schwab funds, 16 Taxable and 15 Tax-​Exempt. The largest of the Schwab funds is $​39.​3 billion Schwab Cash Reserves Fund (​SWSXX), a Prime Retail fund. It is the third largest Prime Retail fund we track, behind Fidelity Cash Reserves ($​113B) and Vanguard Prime ($​103B). It is the 5th largest money market fund overall. The next largest fund in their lineup is Schwab Government Money Market Fund with $​22.​6 billion, followed by Schwab Advisor Cash Reserves Prem with $​22.​3 billion. Other large Schwab MMFs include Schwab US Treasury Money Fund ($​20.​4 billion), Schwab Money Market Fund ($​14.​7 billion), Schwab Municipal MF ($​13.​0 billion, the second largest Tax Exempt fund Crane Data tracks), Schwab Value Advisor MF ($​10.​7 billion), and Schwab CA Municipal MF Sweep ($​7.​3 billion).

We also noticed that the $​1.​2 billion Schwab Treasury Obligations Money Fund has been closed to new investors, according to a notice on Schwab'​s site and a recent SEC filing. Finally, watch for the May issue of our Money Fund Intelligence newsletter, which ships on Thursday, for a summary of all the MMF changes that have been announced so far. About 10 firms have released statements, including 7 of the 10 largest money fund managers, and we'​ll review and list the links in our latest update.

​

The Investment Company Institute, which hosts it 2015 General Membership Meeting next week in Washington, released its latest weekly "Money Market Mutual Fund Assets" report yesterday and its latest monthly "Trends in Mutual Fund Investing" late on Wednesday. The former shows money fund assets dropping for the 5th week in a row, while the latter shows that total money fund assets decreased by $​32.​9 billion in March, or 1.​2%, to $​2.​646 trillion. Money market funds have posted 3 straight months of asset declines through March, decreasing by $​79.​8 billion since the beginning of the year, according to ICI, and they'​re on course for a big drop in April. Money fund assets have fallen by $​52 billion in April month-​to-​date, and by $​151 billion, or 5.​5% year to date through April 29. We review ICI'​s latest weekly and monthly asset figures, as well as its latest Portfolio Composition figures (​verify a huge jump in repo holdings in March), below.

ICI'​s weekly says, "Total money market fund assets decreased by $​5.​92 billion to $​2.​58 trillion for the week ended Wednesday, April 29, the Investment Company Institute reported today. Among taxable money market funds, Treasury funds (​including agency and repo) increased by $​13.​11 billion and prime funds decreased by $​14.​18 billion. Tax-​exempt money market funds decreased by $​4.​84 billion." Note that money fund assets normally drop sharply in April due to tax payments, and they'​ve fallen around 5% during the first half of the year for 4 consecutive years now.

They explain, "Assets of retail money market funds decreased by $​5.​22 billion to $​860.​08 billion. Among retail funds, Treasury money market fund assets decreased by $​810 million to $​190.​51 billion, prime money market fund assets decreased by $​1.​84 billion to $​490.​01 billion, and tax-​exempt fund assets decreased by $​2.​57 billion to $​179.​56 billion. Assets of institutional money market funds decreased by $​700 million to $​1.​72 trillion. Among institutional funds, Treasury money market fund assets increased by $​13.​92 billion to $​764.​42 billion, prime money market fund assets decreased by $​12.​34 billion to $​893.​20 billion, and tax-​exempt fund assets decreased by $​2.​27 billion to $​64.​22 billion."

ICI'​s "Trends in Mutual Fund Investing March 2015" shows that total money fund assets decreased by $​32.​9 billion, or 1.​2%, to $​2.​646 trillion, in March 2015. It was the third straight month of declines, as assets dropped $​13.​9 billion in February and $​33.​4 billion in January. (In April, money fund assets are down once again; our Money Fund Intelligence Daily shows assets down $​73.​1 billion through April 29.)

The report says, "​The combined assets of the nation'​s mutual funds decreased by $​100.​13 billion, or 0.​6 percent, to $​16.​14 trillion in March, according to the Investment Company Institute'​s official survey of the mutual fund industry.... Bond funds had an inflow of $​6.​19 billion in March, compared with an inflow of $​17.​19 billion in February.... Money market funds had an outflow of $​32.​27 billion in March, compared with an outflow of $​14.​09 billion in February. In March funds offered primarily to institutions had an outflow of $​30.​34 billion and funds offered primarily to individuals had an outflow of $​1.​93 billion." The total number of money market funds stood at 526 (​363 Taxable, 163 Tax-​Exempt), down 1 from the previous month. MMFs represent 16.​4% of all mutual funds, according to ICI'​s statistics.

ICI'​s latest "Month-​End Portfolio Holdings of Taxable Money Funds" verified our previously reported sizable increases in Repo and Treasuries, and decreases in Time Deposits, CDs, and CP in March. (​See Crane Data'​s April 13 "​News", "April MF Portfolio Holdings Show Spike in Fed Repo, Treasury Jump.") ICI'​s series shows that holdings of Repo increased $​100.​5 billion, or 18.​8%, in March (​after increasing $​12.​8B in February) to $​635.​4 billion. Repos, which jumped ahead of CDs, represent 26.​6% of taxable MMF holdings. CDs (​including Eurodollar) decreased by $​107.​5B, or 16.​9%, in March to $​530.​2B, after increasing $​9.​3 billion in February. CDs represent 22.​2% of assets and are the second largest composition segment.

Treasury Bills & Securities remained in third place, increasing by $​57.​3 billion, or 14.​9%, in March to $​441.​1 billion (​18.​5% of assets). Commercial Paper was fourth, decreasing $​27.​7B, or 7.​4%, to $​346.​8 billion (​14.​5% of assets). U.​S. Government Agency Securities stayed in fifth, dropping $​12.​4 billion, or 3.​6%, to $​328.​3 billion (​13.​7% of assets). Notes (​including Corporate and Bank) dropped by $​7.​5 billion, or 9.​8%, to $​68.​6 billion (​2.​9% of assets), and Other holdings (​including Cash Reserves) plunged by $​33.​7 billion to $​38.​1 billion.

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased by 69.​6 thousand to 23.​307 million, while the Number of Funds dropped by 1 to 363. Over the past 12 months, the number of accounts fell by 612.​9 thousand and the number of funds declined by 17. The Average Maturity of Portfolios was 43 days in March, same as the previous month. Over the past 12 months, WAMs of Taxable money funds have declined by 3 days.

Note: Crane Data updated its April MFI XLS late last week to reflect our final 3/​31/​15 composition data and maturity breakouts for our entire fund universe. (​Visit our Content Center and the latest Money Fund Portfolio Holdings download page to access our April Money Fund Portfolio Holdings.)

Money Market News Archive