News Archives: February, 2019

This month, MFI interviews Charles Schwab Investment Management CEO Marie Chandoha, who will be stepping down at the end of March 2019. We wanted to ask Chandoha to look back at her tenure at Schwab, which included the extended post-crisis stretch of zero yields, and to get some parting words of wisdom. She tells us about her "crash course" in cash, the struggle against more onerous money fund reforms and a number of other issues. Our discussion follows. (Note: The following is reprinted from the February issue of Money Fund Intelligence, which was published on Feb. 7. Contact us at info@cranedata.com to request the full issue.)

MFI: Talk about your decision to retire. Chandoha: I've been in the business for 35 years and have had a really great run. I've loved being in the industry, but now it's time for my next chapter.... I'm going to spend a little more time with my family and do some traveling. But I also still love the industry. I just want to interface with it in a different way [going forward by] serving on boards.

MFI: Give us a little history on CSIM. Chandoha: CSIM has been around for almost 30 years. We actually got started with our money funds, and our very first hire was ... Linda Klingman who [now] heads up our money fund portfolio management. So, it's been a very important business for us from the very beginning.... When I think about our money fund team, we have a diverse group.... For example, Lynn Paschen heads up our Government money fund area, [so there is] definitely a good contingent of women and other diverse individuals.

MFI: Money funds are still very important to CSIM, right? Chandoha: Yes, they are the biggest asset class that that we manage. We're the 7th-largest provider in the country and manage $153 billion in money funds. Prime funds are the predominant fund category with about $90 billion in AUM.... One thing I realized in coming to Schwab is just how important money funds and cash products are for retail investors. It's such a core part of people's portfolios, so, it is a very critical part of what we do and how we serve our clients.

My background is in fixed income. I was a portfolio manager and ... when I was at Barclays Global Investors, I headed up the global fixed-income business…. But I did not ever manage or oversee money funds until I came to Schwab. Having a fixed-income background was incredibly valuable. One thing I realized very quickly is that people think money funds are relatively straightforward, 'It's just cash.' But there is a complexity to money funds that many people do not realize. Certainly, coming in right after the Financial Crisis, Money Fund Reform was a very big part of my life at Schwab. So, not only was it a crash course in overseeing money funds but also in the [regulatory] reform process.

Overall we have 11 portfolio managers that support our money fund business and 15 credit analysts. They oversee our whole process. When I came on board, most of our operations were based in San Francisco. We felt it was important from a business-continuity perspective, and also a recruiting perspective, to have more than one location. So, we began building out our operations in Denver. The team is now split between those two locations, and that works well.

MFI: What's your proudest accomplishment? Chandoha: I spent a lot of time on Money Fund Reform and testified in front of the U.S. House of Representative's Committee on Financial Services.... I think as we went through reform and reviewed many different proposals, there were ... existential moments for the money fund business. You realize that retail investors just don’t have that much choice when it comes to cash investing. They have bank-type products and can invest in short duration funds. But money funds are a really important choice for retail investors. The average retail investor is not going to have access to separately-managed accounts; if you're ultra-high net worth you might. Being able to preserve money funds for retail investors was a really important mission. And I do feel like it is one of my proudest moments to have come through that money fund reform process [with] that investment choice for investors still available.

Even though it was a dark and challenging time for the industry, I do think the industry has come out of that stronger and safer than ever. And that's really important. Some of the rules around what we can invest in make money funds safer and help ensure that a fund does not get into trouble in the future. Because if any one fund has a problem, then it's a big issue for the rest of the industry.

In terms of the challenges, even though most of our clients are retail investors or registered investment advisers, you wouldn't expect that we'd have a lot of institutional investors. But the way the SEC defined 'institutional,' we actually did. So segregating clients, identifying who was deemed institutional, and making sure they were in the right products, was a very big process for us. I would also say because we had over 3 million shareholders at that time, educating everyone about money fund reform was a big undertaking. We had to explain to investors why things were changing and why they were being put in new funds. Educating clients ... and ensuring they were comfortable with where they ended up took a significant amount of time. Many did not understand why this was happening.

MFI: Were you pleased that retail funds were spared from some rule changes? Chandoha: Preserving a product that is an important choice for retail investors was crucial. And it did seem to us that a lot of the things that were being discussed were geared more to institutional investors.... We didn't see retail investors exiting funds during the crisis in the way that institutional investors were.... That's why we actually felt it was important to segregate retail investors from institutional investors.

MFI: What are your successor's priorities? Chandoha: When I announced my retirement last year, I shared that Jonathan de St. Paer was named President and that he would succeed me as CEO when I stepped down at the end of March. We've been working together for the last eight years that I've been here. He is incredibly well regarded by the team. So, it's a very smooth transition. He will continue on with our strategy and approach that we've had for the last eight years.

MFI: What about the biggest challenges? Chandoha: The asset management industry has been immune from a lot of big shifts. But I do feel like we're at an inflection point, and I see major things happening. First, product preferences are changing. The adoption of index-based products and ETFs has been growing tremendously. The adoption of multi-asset strategies is growing as well.... So, client preferences are shifting dramatically, which is creating a situation where there are winners and losers in the industry, depending on their product offerings. I think the second thing that's happening is that there's margin pressure -- there is fee pressure while the cost of doing business is going up. Post crisis, regulatory costs increased in addition to other expenses such as managing cybersecurity, etc. So, it's creating an environment where asset managers have to operate in a much more efficient way to ensure that they have reasonable margins going forward.

The final thing that I see -- from all clients whether they're retail clients, RIAs or institutional clients -- is that they are overwhelmed with information and choice. There are a lot of products out there and it's a lot to keep track of. We have always been focused on trying to keep things straightforward and offering what's really relevant for clients.... So, that's a real challenge.... One of the things that I say is: Simplicity is the new innovation in asset management.

MFI: What's the relationship between CSIM, the brokerage and bank? Chandoha: Schwab has three major lines of businesses. Brokerage is obviously one of the biggest, but we also have a very substantial bank, and we have our asset management business. All of these have been growing ... and as we've been growing, there was cash investing happening in each of these different areas. The firm more broadly wanted to rationalize how clients were using cash while ensuring a strong financial foundation for the whole company. So, it was really about being clearer on different uses of cash. So, for clients who need cash in their brokerage accounts for sweep purposes, those types of assets have and are being moved from the 'sweep' money funds to the bank. Bank sweep is very convenient, very flexible, and has FDIC insurance. But although those yields are competitive relative to other banks, they are generally lower than what you'd see with a money fund. For clients looking for yield, maybe they have cash they can put aside, we offer 'purchase' money funds. There are also other options that are available at Schwab through the brokerage side: fixed-income securities, separately-managed accounts, etc. So, we're really trying to segregate different uses of cash and the products associated with them.

MFI: Talk about the fee waiver era. Chandoha: Certainly that was a difficult time when I look back. We waived $4.1 billion in fees from 2009 through 2017. So, it was quite substantial. But as I said, cash is a really critical part of retail investors' or RIA's investment approach. While that kind of revenue give-up was significant, the asset class was always viewed as critical for our clients. So, it was just a period we needed to go through. I'm glad we're out of it. Soon after we stopped waiving fees, we reduced the OERs [expense ratios] on our money funds to make sure that they were competitive.

MFI: Any final comments about MMFs? Chandoha: The industry went through such a tough time after the Financial Crisis. What I see from my vantage point is that clients really value the money fund product. We hear it every day. They appreciate the fact that they're getting competitive yields, especially retirees who are really excited to finally see some yield.... They appreciate the fact that they're run conservatively and that there's transparency into the underlying investments. I feel the future is bright for the money fund industry. MFI: Thanks Marie, and best of luck!

Crane Data's latest MFI International shows total assets in "offshore" money market mutual funds, U.S.-style funds domiciled in Ireland or Luxemburg and denominated in USD, Euro and GBP (sterling), flat year-to-date, though Euro MMFs are seeing declines. Through 2/13/19, overall MFII assets are down $13.0 billion to $833 billion. (They rose $15 billion in 2018.) Offshore USD money funds are down $1.8 billion YTD (they rose $29B last year). Euro funds are seemingly still feeling the pain of negative rates and pending European MMF reforms set to take final effect next month; they're down E8.7 billion YTD (following 2 flat years). GBP funds are up, however, by L948 million. U.S. Dollar (USD) money funds (175) account for over half ($452.2 billion, or 54.3%) of this "European" money fund total, while Euro (EUR) money funds (102) total E90.3 billion (10.8%) and Pound Sterling (GBP) funds (104) total L210.4 billion (25.3%). We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings below.

Offshore USD MMFs yield 2.35% (7-Day) on average (as of 2/13/19), up from 2.29% on 12/31/18, 1.19% at the end of 2017 and 0.56% at the end of 2016. EUR MMFs yield -0.51 on average, compared to -0.49% at year-end 2018, -0.55% on 12/29/17 and -0.49% on 12/30/16. Meanwhile, GBP MMFs yielded 0.67%, up from 0.64% on 12/31/18, from 0.24% at the end of 2017 and 0.19% at the end of 2016. (See our latest MFI International for more on the "offshore" money fund marketplace.)

Crane's MFII Portfolio Holdings, with data (as of 1/31/19), show that European-domiciled US Dollar MMFs, on average, consist of 28% in Commercial Paper (CP), 23% in Repurchase Agreements (Repo), 21% in Certificates of Deposit (CDs), 14% in Other securities (primarily Time Deposits), 13% in Treasury securities and 1% in Government Agency securities. USD funds have on average 39.2% of their portfolios maturing Overnight, 8.9% maturing in 2-7 Days, 17.8% maturing in 8-30 Days, 9.0% maturing in 31-60 Days, 11.4% maturing in 61-90 Days, 8.9% maturing in 91-180 Days, and 4.9% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (24.1%), France (17.1%), Japan (12.1%), Canada (10.7%), the United Kingdom (6.9%), Sweden (4.7%), the Netherlands (4.4%), Germany (4.1%), Australia (3.2%), Switzerland (2.3%), China (2.1%), and Singapore (1.9%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $63.4 billion (12.8% of total assets), BNP Paribas with $25.8B (5.2%), Credit Agricole with $17.3B (3.5%), Mitsubishi UFJ Financial Group Inc with $17.3B (3.5%), Barclays PLC with $16.6B (3.3%), Wells Fargo with $14.6B (2.9%), Bank of Nova Scotia with $13.0B (2.6%), Mizuho Corporate Bank Ltd with $12.0B (2.4%), Sumitomo Mitsui Banking Co with $11.0B (2.2%), and Toronto-Dominion Bank with $10.6B (2.1%).

Euro MMFs tracked by Crane Data contain, on average 47% in CP, 22% in CDs, 21% in Other (primarily Time Deposits), 8% in Repo, 1% in Agency securities, and 1% in Treasuries. EUR funds have on average 23.9% of their portfolios maturing Overnight, 9.6% maturing in 2-7 Days, 19.0% maturing in 8-30 Days, 17.4% maturing in 31-60 Days, 10.0% maturing in 61-90 Days, 17.3% maturing in 91-180 Days and 2.7% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (30.7%), Japan (12.6%), the US (10.8%), Germany (7.8%), Sweden (6.1%), the Netherlands (5.4%), Switzerland (3.6%), the U.K. (3.6%), Canada (3.3%), Belgium (3.1%) and China (2.7%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E6.5B (7.1%), BNP Paribas with E4.2B (4.6%), Mizuho Corporate Bank Ltd with E3.1B (3.4%), Credit Mutuel with E3.1B (3.4%), Mitsubishi UFJ Financial Group with E2.8B (3.1%), Procter & Gamble Co. with E2.8B (3.0%), Svenska Handelsbanken with E2.7B (3.0%), Natixis with E2.5B (2.7%), Pohjola Bank PLC with E2.3B (2.6%), and Sumitomo Mitsui Banking Co with E2.3B (2.5%).

The GBP funds tracked by MFI International contain, on average (as of 1/31/19): 35% in CDs, 26% in Other (Time Deposits), 24% in CP, 11% in Repo, 3% in Treasury, and 1% in Agency. Sterling funds have on average 24.8% of their portfolios maturing Overnight, 12.4% maturing in 2-7 Days, 16.3% maturing in 8-30 Days, 14.8% maturing in 31-60 Days, 18.4% maturing in 61-90 Days, 8.3% maturing in 91-180 Days, and 4.9% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (16.2%), Japan (15.4%), the United Kingdom (15.4%), Canada (10.1%), the Netherlands (7.5%), Australia (6.9%), Germany (6.5%), Sweden (4.0%), the United States (3.9%), and Singapore (3.9%).

The 10 Largest Issuers to "offshore" GBP money funds include: UK Treasury with L11.6B (7.2%), Mizuho Corporate Bank Ltd with L7.3B (4.5%), BPCE SA with L5.1B (3.2%), Sumitomo Mitsui Banking Co with L5.1B (3.2%), BNP Paribas with L5.1B (3.1%), Mitsubishi UFJ Financial Group with L5.1B (3.1%), Toronto-Dominion Bank with L4.8B (2.9%), Rabobank with L4.6B (2.9%), Sumitomo Mitsui Trust Bank with L4.6B (2.8%), and Standard Chartered Bank with L4.6B (2.8%).

In other news, the Investment Company Institute released its latest "Money Market Fund Holdings" summary on Thursday (with data as of Jan. 25, 2019). This monthly update reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (See our Feb. 12 News, "Feb. MF Portfolio Holdings: Repo, CD, CP, TD Jump; Treasuries Drop.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in January, prime money market funds held 25.8 percent of their portfolios in daily liquid assets and 42.5 percent in weekly liquid assets, while government money market funds held 61.0 percent of their portfolios in daily liquid assets and 79.0 percent in weekly liquid assets." Prime DLA fell from 29.1% in December, and Prime WLA dipped from 43.1% the previous month. Govt MMFs' DLA declined from 62.6% in December but Govt WLA increased from 77.9% that month.

ICI explains, "At the end of January, prime funds had a weighted average maturity (WAM) of 33 days and a weighted average life (WAL) of 65 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 29 days and a WAL of 88 days." Prime WAMs were up three days from last month, and WALs rose by one day. Govt WAMs shortened by two days from December levels and Govt WALs slipped by one day that month.

Regarding Holdings By Region of Issuer, ICI's release tells us, "Prime money market funds' holdings attributable to the Americas declined from $275.16 billion in December to $256.98 billion in January. Government money market funds' holdings attributable to the Americas declined from $1,977.67 billion in December to $1,811.68 billion in January."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $257.0 billion, or 42.8%; Asia and Pacific at $119.3 billion, or 19.9%; Europe at $219.4 billion, or 36.5%; and, Other (including Supranational) at $5.3 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $1.812 trillion, or 78.1%; Asia and Pacific at $126.6 billion, or 5.5%; and Europe at $375.6 billion, or 16.2%.

The February issue of our Bond Fund Intelligence, which was sent out to subscribers Thursday morning, features the lead story, "Crane, JPMAM's Junker on Ultrashort BFs at University," which features comments from our recent Money Fund University on ultra-shorts, and the profile, "SEI Investments' Simko Talks About Total Return," our latest Portfolio Manager interview. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show lower bond fund yields, but higher returns in January. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. Also, register soon for our 3rd annual Bond Fund Symposium, March 25-26, 2019 in Philadelphia.)

The lead BFI story features a discussion featuring Cecilia Junker of J.P. Morgan Asset Management at the recent Crane's Money Fund University conference. Junker says, "Ultra-short can mean a lot of things.... For us [at JPM], it's just generally a max duration of one year. But we'll invest out to a duration of, let's say, 1.5 [years]. So, duration does pretty much define it."

She continues, "We really have the goal of being a low volatility and a safe-haven asset class.... We actually have the same investing process, the same philosophy, the same approved-for-purchase list as our money-fund group. Obviously, there are some names that we can buy because we can go down in credit a little bit."

Our "Fund Profile" says, "This month, BFI interviews Sean Simko, managing director and head of Global Fixed Income Management at SEI Investments. He discusses SEI's separately-managed account options, and forecasts that the Fed will likely not make any further upward moves in short-term interest rates this year."

BFI asks Simko, "How long has SEI been involved in running (short-term) bond funds?" He answers, "SEI has been offering short-term bond funds since the launch of the SDIT Short-Duration Government Fund in February of 1987."

We also ask him to, "Tell us about the Real Return Bond Fund. He responds, "Tim Sauermelch, CFA, and I have co-managed the Real Return Bond Fund since 2013. The fund strives to protect investors’ purchasing power against inflation. The strategy is implemented primarily through the use of Treasury Inflation-Protected Securities. This fund could be viewed as a staple in an investment portfolio that is looking to receive inflation protection." (Watch for more excerpts from this article later this month, or see the latest issue of BFI.)

Our Bond Fund News includes the brief "Yields Plunge, Returns Jump in Jan." It explains, "Bond fund yields fell for all categories but Ultra-Shorts. The BFI Total Index returned 1.39% for 1-month and 1.59% over 12 months. The BFI 100 returned 1.47% in January and 1.97% over 1 year. The BFI Conservative Ultra-Short Index returned 0.31% over 1 month and 2.08% over 1-year; the BFI Ultra-Short Index averaged 0.51% in Jan. and 1.78% over 12 mos. Our BFI Short-Term returned 0.87% and 1.81%, and BFI Intm-Term Index returned 1.29% and 1.71% for 1-mo and 1-year. BFI's Long-Term Index returned 1.63% in Jan. and 1.14% for 1-yr; BFI's High Yield Index returned 3.63% in Jan. and 0.86% over 1-yr.

Another brief, "WSJ on Active vs. Passive Bond Funds," tells us, "The article, 'Active Funds Are Winning (in Bonds, That Is),' argues, 'Actively managed open-end bond mutual funds and exchange-traded funds have done better than merely following an index."

A News update titled, "Federated's Q4 Earnings Call Talks Bond Funds," observes, "The top-selling fixed-income funds ... included Federated Ultrashort Bond Fund, Federated Municipal Ultrashort Fund, Federated Short-Term Income Fund, Federated Government Ultrashort Duration Fund and Federated Real Return Bond Fund." CEO Chris Donahue says, "We saw fund inflows in ultra-short and other short duration products offset by outflows in high yield and other."

A fourth News brief, "Financial Advisor Magazine writes 'Ultra-Short Bond Funds Satisfy Multiple Challenges'" notes, "Financial advisors are embracing ultra-short bond funds to help clients eke out more yield in a rising interest rate environment plagued with multiple uncertainties."

Finally, a sidebar entitled, "Fitch Worries About BFs," concerns a Fitch Ratings' paper, "The Coming Storm: Bond Funds' Potential Impacts on Financial Stability," which tells us, "Regulators are increasingly focused on open-ended bond funds as a potential source of financial instability. The growth of the bond market, fed by central bank quantitative easing (QE) and tighter bank regulation, has fueled a surge in open-ended mutual funds, accompanied by increasing liquidity mismatches and growing credit and duration risks."

Early last week, we provided an overview of State Street Global Advisors' "2019 Global Cash Outlook," including a brief overview of the segment entitled, "The Future is Coming." (See our Feb. 4 News, "SSGA Discusses ESG MMF Challenges, Tech, AI.") Below, we look again at this update, which discusses the possibility of 24-hour trading in money market mutual funds, and we also cite a press release from the OFR on Repo and a WSJ article on SOFR and LIBOR.

Will Goldthwait, portfolio strategist for SSGA's Global Cash and Fixed Income Investment Management Teams, explains in the Outlook, "We think new features of cash management will include more than centralized trading platforms and enhanced liquidity and risk-monitoring." He went on to add color to the idea of "Looking toward the 24-hour, 7-day, 7-continent MMF." Goldthwait posed the question, "Need retail cash at 3:00 a.m.?" That is not a problem for bank customers anywhere in the world right now, even on a Sunday. But for institutional cash investors, no action can be completed outside of regular business hours, he pointed out.

The reason? Limits inherent in the Federal Reserve's payment system. He explains, "The system for transferring funds between banks and businesses handled over $1 quadrillion in transactions in 2016, but it does not reflect the automated, 24/7, instantaneous nature of contemporary business. By the Fed's own description, it works on a deferred basis, 'a buildup of obligations -- like IOUs between banks -- that could present real risks to the financial system in times of stress.' This helps explain MMF deadlines and end-of-day closures, established to minimize settlement risk."

There are moves afoot to develop a new system, he says, that "would introduce 'real-time gross settlement,' which promises to operate 24/7 and settle each payment as soon as it is sent." Goldthwait continues, "This would allow credits and debits to clear immediately, potentially reducing risk. Perhaps it would introduce the ability to borrow for only hours instead of days; would a 6-hour load be more flexible and profitable for both the borrower and lender? Some institutions are familiar with this in the form of 'daylight overdraft charges.' Would an intraday loan help this situation?"

He adds, "The Fed has long held the responsibility of modernizing the payment system. In the early days of the 19th century when it could take a week or month for a New York bank to clear a check drawn on an Alabama bank, the Fed established a more efficient system to move money. In 1973, when that physical check clearing system became overwhelmed, the Fed worked with the private sector to create the Automated Clearing House. If the Fed implements its plan for developing a real-time gross settlement system, we believe the money fund industry would seize the opportunity."

In other news, a press release entitled, "Office of Financial Research Adopts Data Collection Rule," tell us, "The U.S. Office of Financial Research adopted a final rule today to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market. The daily collection will enhance the ability of the Financial Stability Oversight Council to identify and monitor potential risks to U.S. financial stability by closing the data gap related to centrally cleared repo transactions."

It explains, "The collection will also support the calculation of certain reference rates, particularly alternatives to the U.S. dollar London Interbank Offered Rate (LIBOR). LIBOR has been used as a benchmark to set interest rates on trillions of dollars of home mortgages, private student loans, corporate loans, derivatives, and other financial products. LIBOR participation declined after LIBOR-related misconduct, creating the need by industry and regulators for an alternative."

The OFR writes, "As a result of this need, the Federal Reserve formed the industry-led Alternative Reference Rates Committee, which selected the Secured Overnight Financing Rate (SOFR) as the preferred LIBOR alternative. Cleared repo data from the collection will be used to enhance the production of the SOFR. The data collection will help inform U.S. financial regulators and market participants about potential risks in the financial system, while helping to fill an important need for a LIBOR alternative with minimal regulatory burden."

They add, "The rule requires the submission of information by central counterparties with average daily total open repo commitments of at least $50 billion. The Fixed Income Clearing Corporation would be the only market participant required to report if the collection began today, but other firms could meet the eligibility criteria for reporting in the future. The collection is expected to begin in mid-October."

Finally, yesterday's Wall Street Journal featured the article, "The Benchmark Set to Replace Libor Suffers Volatility Spike," which says, "Recent volatility in the market for overnight cash loans is raising concerns about a new benchmark that could set interest rates for trillions of dollars in mortgages and corporate debt."

The piece explains, "The cost to borrow cash overnight spiked late last year in part of the market for repurchase agreements, where lenders such as money-market funds make short-term loans to bond brokers, often using government debt as collateral. The 'repo' rate topped out above 6% in intraday trading on Dec. 31 before settling at an all-time high of 5.149%, according to JPMorgan."

The Journal says, "The supply of securities that are used for collateral in the repo market has grown as the Treasury has increased its sales of short-term debt to help fund rising budget deficits. At the same time, demand for the securities has increased after the banking industry's central clearinghouse for bonds, the Fixed Income Clearing Corp., began allowing banks to sponsor hedge funds as direct participants in repo trading."

They add, "The repo market 'is absolutely an indispensable grease and catalyst to the smooth functioning of other markets,' said Glenn Havlicek, a former banker who is now chief executive of GLMX, a technology company that is providing tools to repo trading firms, with the aim of making it easier to transact and report pricing. 'But it was never anticipated for prime time. There are definitely growing pains.'"

Crane Data released its February Money Fund Portfolio Holdings Monday, and our most recent collection of taxable money market securities, with data as of Jan. 31, 2019, shows big increases in Repurchase Agreements, Certificates of Deposit, Commercial Paper and Other (mainly Time Deposits), and a big drop in Treasury holdings. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $4.2 billion to $3.128 trillion last month, after increasing by $98.0 billion in December, $41.7 billion in November and $61.0 billion in October. Repo continued to be the largest portfolio segment, remaining above the $1.0 trillion mark, followed by Treasury securities, then Agencies. CP remained fourth ahead of CDs, Other/Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Visit our Content center to download the latest files, or contact us to see our latest Portfolio Holdings reports.)

Among taxable money funds, Repurchase Agreements (repo) rose $41.4 billion (4.0%) to $1.072 trillion, or 34.3% of holdings, after increasing $29.6 billion in December, $18.1 billion in Nov., and $17.3 billion in Oct. Treasury securities plunged by $99.0 billion (-10.6%) to $834.3 billion, or 26.7% of holdings, after rising $70.2 billion in Dec., $33.5 billion in Nov., and $21.7 billion in Oct. Government Agency Debt increased slightly, by $0.7 billion (0.1%), to $661.5 billion, or 21.1% of holdings, after increasing $25.9 billion in Dec., decreasing $8.3 billion in Nov., and rising $4.4 billion in Oct. Repo, Treasuries and Agencies totaled $2.568 trillion, representing a massive 82.1% of all taxable holdings.

Money funds' holdings of CDs, CP and Other (mainly Time Deposits) all posted gains in January. Commercial Paper (CP) moved up $17.7 billion (7.8%) to $244.0 billion, or 7.8% of holdings, after falling $12.1 billion in December and $1.7 billion in Nov., but and adding $0.7 billion in Oct. Certificates of Deposits (CDs) jumped $30.4 billion (15.9%) to $221.8 billion, or 7.1% of taxable assets, after declining $5.1 billion in Dec., rising $4.1 billion in Nov. and rising $15.1 billion in Oct. Other holdings, primarily Time Deposits, increased $13.1 billion (17.7%) to $86.9 billion, or 2.8% of holdings, after dropping $10.5 billion at year-end. VRDNs inched up to $7.9 billion, or 0.3% of assets. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately later today.)

Prime money fund assets tracked by Crane Data gained $57 billion to $802 billion, or 25.6% of taxable money fund total taxable holdings of $3.128 trillion. Among Prime money funds, CDs represent over a quarter of holdings at 27.6 % (up from 25.7% a month ago), while Commercial Paper accounted for 30.4% (up from 30.3%). The CP totals are comprised of: Financial Company CP, which makes up 19.1% of total holdings, Asset-Backed CP, which accounts for 7.1%, and Non-Financial Company CP, which makes up 4.2%. Prime funds also hold 4.5% in US Govt Agency Debt, 7.9% in US Treasury Debt, 5.3% in US Treasury Repo, 1.3% in Other Instruments, 1.2% in Non-Negotiable Time Deposits, 1.2% in Other Repo, 8.2% in US Government Agency Repo, and 0.8% in VRDNs.

Government money fund portfolios totaled $1.597 trillion (51.1% of all MMF assets), down from $1.605 trillion in Dec., while Treasury money fund assets totaled another $729 billion (23.3%), down from $774 billion the prior month. Government money fund portfolios were made up of 39.1% US Govt Agency Debt, 21.1% US Government Agency Repo, 17.1% US Treasury debt, and 22.5% in US Treasury Repo. Treasury money funds were comprised of 68.2% US Treasury debt, 31.7% in US Treasury Repo, and 0.1% in Government agency repo, Other Instrument, and Investment Company shares. Government and Treasury funds combined now total $2.326 trillion, or 74.4% of all taxable money fund assets.

European-affiliated holdings (including repo) rose by $189.0 billion in January to $669.9 billion; their share of holdings rose to 21.4% from last month's 15.4%. Eurozone-affiliated holdings mushroomed to $427.1 billion from last month's $277.7 billion; they account for 13.7% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $19.6 billion to $297.6 billion (9.5% of the total). Americas related holdings slid $205.0 billion to $2.159 trillion and now represent 69.0% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $15.8 billion, or 2.6%, to $632.6 billion, or 20.2% of assets); US Government Agency Repurchase Agreements (up $31.2 billion, or 8.4%, to $403.3 billion, or 12.9% of total holdings), and Other Repurchase Agreements (down $5.6 billion from last month to $36.2 billion, or 1.2% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $10.1 billion to $153.4 billion, or 4.9% of assets), Asset Backed Commercial Paper (up $2.6 billion to $57.1 billion, or 1.8%), and Non-Financial Company Commercial Paper (up $5.0 billion to $33.5 billion, or 1.1%).

The 20 largest Issuers to taxable money market funds as of Jan. 31, 2019, include: the US Treasury ($843.3 billion, or 28.2%), Federal Home Loan Bank ($524.8B, 17.7%), BNP Paribas ($139.7B, 4.7%), RBC ($112.4B, 3.8%), Fixed Income Clearing Co ($95.1B, 3.2%), Federal Farm Credit Bank ($83.3B, 2.8%), JP Morgan ($67.4B, 2.3%), Barclays ($65.1B, 2.2%), Credit Agricole ($62.3B, 2.1%), Wells Fargo ($61.8B, 2.1%), Mitsubishi UFJ Financial Group Inc ($58.3B, 2.0%), Sumitomo Mitsui Banking Co ($54.3B, 1.8%), HSBC ($49.0B, 1.7%), Societe Generale ($43.8B, 1.5%), Natixis ($41.9B, 1.4%), Mizuho Corporate Bank Ltd ($41.4B, 1.4%), Citi ($40.5B, 1.4%), Bank of America ($39.1B, 1.3%), Bank of Montreal ($38.1B, 1.3%), and Nomura ($37.1B, 1.3%).

In the repo space, the 10 largest Repo counterparties (dealers) with the amount of repo outstanding and market share (among the money funds we track) include: BNP Paribas ($127.8B, 11.9%), Fixed Income Clearing Co ($95.1B, 8.9%), RBC ($88.4B, 8.2%), JP Morgan ($55.2B, 5.2%), Barclays PLC ($54.3B, 5.1%), Wells Fargo ($51.3B, 4.8%), Credit Agricole ($45.6B, 4.3%), HSBC ($42.2B, 3.9%), Sumitomo Mitsui Banking Co ($37.2B, 3.5%), and Nomura ($37.1B, 3.5%). Fed Repo positions among MMFs on 1/31/19 include: DFA Short Term Investment Fund ($0.3B), Franklin IFT US Govt MM ($0.2B), Northern Inst Govt Select ($0.2B), Northern Trust Trs MMkt ($0.2B), Northern Inst Govt ($0.1B), Northern Trust US Govt MMkt ($0.1B).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($24.0B, 5.0%), Mitsubishi UFJ Financial Group Inc. ($21.6B, 4.5%), Toronto-Dominion Bank ($20.8B, 4.3%), Mizuho Corporate Bank Ltd ($18.8B, 3.9%), Sumitomo Mitsui Banking Co ($17.1B, 3.6%), Credit Agricole ($16.6B, 3.5%), Svenska Handelsbanken ($14.4B, 3.0%), Sumitomo Mitsui Trust Bank ($14.3B, 3.0%), Bank of Nova Scotia ($14.2B, 3.0%), and Credit Suisse ($13.9B, 2.9%).

The 10 largest CD issuers include: Mitsubishi UFJ Financial Group Inc ($16.3B, 7.3%), Bank of Montreal ($13.1B, 5.9%), Mizuho Corporate Bank Ltd ($13.0B, 5.8%), Sumitomo Mitsui Banking Co ($12.7B, 5.7%), Svenska Handelsbanken ($12.2B, 5.5%), Sumitomo Mitsui Trust Bank ($10.3B, 4.6%), Wells Fargo ($10.2B, 4.6%), RBC ($9.4B, 4.2%), KBC Group NV ($9.3B, 4.2%), and Landesbank Baden-Wurttemberg ($8.4B, 3.8%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: RBC ($13.3B, 6.3%), JPMorgan ($12.1B, 5.7%), Toronto-Dominion Bank ($11.4B, 5.4%), Credit Suisse ($8.5B, 4.0%), UBS AG ($7.5B, 3.6%), Credit Agricole ($7.4B, 3.5%), Bank of Nova Scotia ($7.0B, 3.3%), Westpac Banking Co ($6.7B, 3.2%), Toyota ($6.4B, 3.0%) and Societe Generale ($6.3B, 3.0%).

The largest increases among Issuers include: BNP Paribas (up $76.9 billion to $139.7B), Credit Agricole (up $31.6B to $62.3B), Mizuho Corporate Bank Ltd (up $27.0B to $41.4B), Barclays PLC (up $52.2B to $65.1B), Natixis (up $29.6B to $41.9B), Credit Suisse (up $21.7B to $30.4B), Sumitomo Mitsui Banking Co (up $45.8B to $54.3B), Societe Generale (up $38.1B to $43.8B), DNB ASA (up $7.3B to $11.0B), and Sumitomo Mitsui Trust Bank (up $16.2B to $19.2B).

The largest decreases among Issuers of money market securities (including Repo) in Jan. were shown by: the US Treasury (down $99.0B to $834.3B), Fixed Income Clearing Co (down $43.2B to $95.1B), RBC (down $14.6B to $112.4B), Toronto-Dominion Bank (down $7.9B to $30.1B), Bank of Montreal (down $5.8B to $38.1B), Australia & New Zealand Banking Group Ltd (down $4.9B to $10.4B), Nomura (down $4.0B to $37.1B), ING Bank (down $3.4B to $27.8B), Federal National Mortgage Association (down $2.6B to $16.1B), and Bank of Nova Scotia (down $2.3B to $35.0B).

The United States remained the largest segment of country-affiliations; it represents 60.7% of holdings, or $1.899 trillion. France (9.7%, $302.9B) climbed into to the No. 2 spot. Canada (8.3%, $259.0B) was third. Japan (7.9%, $246.0B) occupied fourth place. The United Kingdom (4.6%, $143.5B) remained in fifth place. The Netherlands (1.8%, $55.7B) was next, followed by Germany (1.7%, $52.6B), Sweden (1.4%, $44.7B), Switzerland (1.4%, $43.3B), and Australia (1.3%, $39.0B) rounded out the Top 10. (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of Jan. 31, 2019, Taxable money funds held 36.0% (down from 37.0%) of their assets in securities maturing Overnight, and another 14.6% maturing in 2-7 days (up from 11.6% last month). Thus, 50.6% in total matures in 1-7 days. Another 20.4% matures in 8-30 days, while 11.9% matures in 31-60 days. Note that over three-quarters, or 82.9% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 8.1% of taxable securities, while 7.3% matures in 91-180 days, and just 1.7% matures beyond 181 days.

Last week, our February Money Fund Intelligence newsletter featured the article, "Green Money Funds Become a Thing, But Big Issues Remain," which discussed the nascent segment of ESG money funds. (See our Feb. 7 News, "Feb. MFI: Green Money Funds a Thing; Schwab's Chandoha; MFU Recap.") However, DWS took issue with our statement that "To date, Crane Data sees almost no difference between the portfolio holdings of the DWS fund and normal Prime MMFs," so we wanted to get their response on the record and to take another look at the actual portfolio holdings and guidelines. (On second glance, there are clear differences.) Barron's also comments on the trend (both in money funds and in ultra-short bonds) in this weekend's article, "Earning Income With Socially Responsible ETFs and Mutual Funds." We review these below, and we also give an update on our latest Form N-MFP Portfolio Holdings data.

Sonelius Kendrick-Smith, Head of Liquidity Solutions, Americas, at DWS comments, "We're not just focusing on one particular pillar. It's not just environmental or just social or governance. The approach is for E, S and G. DWS has been living that ESG value for 20+ years. It's in our DNA. To the extent that you know you recognize that there are some differences in the fund compared to others, ESG integration has been part of our credit process for a while.... So when a corporate approached us about the idea of a liquidity fund, I think by and large we were able to move quickly because ESG was already integrated and we already had a proprietary process to evaluate securities along with each of those pillars."

He continues, "One of our clients said [about an ESG fund], 'Perfection should not be the enemy of good.' We know that this will be an evolving space right now. People are jumping in, and we're happy there is a dialogue about this right now. But at the end of the day, our method incorporates a more holistic view. We're doing the financial analysis of credit. We're also doing the risk analysis.... It's important for people to understand it isn't just about trying to create green bonds that are specifically for money market funds. We're trying to identify those companies that are doing the things we consider to be important from an ESG perspective."

DWS's Head of Liquidity Management, Americas, Geoff Gibbs explains, "Just like any other 2a-7 regulated money market fund, we will only purchase issuers from a universe of high-quality short duration names that first meet our strict minimum credit risk standard as evaluated by our credit research team. When you look at this selection of high quality short-term issuers and apply an ESG filter to the names, of course you will see issuers that are purchased by other money market funds. Our process involves picking the best names from that universe. On the surface, it may not look different. But it's what you don't see in the portfolio.... Evaluating information from the leading data vendors in [E]nvironmental, [S]ocial and [G]overnance research, we not only exclude names that may not pass certain environmental standards but we also concentrate in names that are the leaders amongst their peer groups in social and governance issues.... We're sticking with what we consider is the best of the best within the space."

When asked about the impact to yield, Gibbs answers, "To a certain extent, when we look at filtering out those weaker ESG names, we felt that there wasn't that much of a yield give-up.... When you factor in the percentages that would be held in a portfolio within those names and what that contributes in terms of performance to the portfolio, we don't feel that there is a significant difference in performance." (The DWS fund is currently waiving most fees and only charging just 2 basis points, which doesn't hurt either.)

Gibbs adds, "Make no mistake about it. We're happy to have company in this space. It highlights that investors are increasingly aware of investing their dollars in a socially responsible manner. We welcome the BlackRock fund [and the comments from] SSGA [that] the universe of issuers that we have to select from is highly concentrated in financials.... When you evaluate environmental, social and governance issues, in banking matters typically arise surrounding governance. By taking into account all aspects of ESG, we are being much more selective."

Barron's "Socially Responsible" article tells us, "Investors can finally earn a little income on their cash, with money-market and short-term bond funds yielding 2% to 4%. But a few exchange-traded and mutual funds have launched lately that offer income with a socially responsible sheen—using environmental, social, or governance, or ESG, criteria in their investment process. The Calvert Ultra-Short Duration Income NextShares ETF (CRUSC) and the TIAA-CREF Short Duration Impact Bond fund (TSDBX) both launched last year; each one focuses on companies that score well on ESG factors."

Author Darren Fonda continues, "Socially responsible money-market funds are also rolling out. Deutsche Bank's asset-management division launched DWS ESG Liquidity fund (ESRXX) in November, repackaging an existing fund with ESG factors. The fund is aimed at institutional investors with a minimum investment of $1 million. Another sustainable money-market fund may soon be coming from BlackRock (BLK). The firm filed registration paperwork in late January for BlackRock Liquid Environmentally Aware Fund or LEAF."

The piece adds, "Are these new fixed-income funds really socially responsible? It depends on your criteria. BlackRock, for instance, says it will use its screening methodology and third-party scoring to weed out non-environmentally friendly firms. Companies involved in fossil-fuel mining, refining, and coal or nuclear power production will be excluded from the fund. BlackRock plans to devote 5% of the fund's management fees to carbon credits. And the firm says it will work with the World Wildlife Fund on an annual conservation report. Whether these measures will qualify the fund for investors who want strict ESG guidelines remains to be seen."

Fore more Crane Data News on Green or ESG money funds, see these articles: "SSGA's 2019 Global Cash Outlook Discusses ESG MMF Challenges, Tech, AI (2/4/19)," "BlackRock to Launch Environmental MF (1/23/19)," "DWS ESG Liquidity Goes Live (9/7/18)," and "DWS Converts Variable NAV to DWS ESG Money Fund, First ESG Offering (8/13/18)." (See BlackRock's pending fund filing here and also Reuters' "BlackRock Plans Environmentally Conscious Money Market Fund". Watch for our Money Fund Portfolio Holdings to be released Monday, and let us know if you'd like to see a comparison of the DWS ESG Liquidity Fund against the overall Prime MMF universe.)

In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be published Monday, Feb. 11, and we'll be writing our normal monthly update on the Jan. 31 data for Tueday's News. But we also generate a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings. (We continue to merge the two series, and the N-MFP version is now available via Holdings file listings to Money Fund Wisdom subscribers.) Our summary, with data as of Jan. 31, 2019, includes holdings information from 1,179 money funds (the same number as last month), representing assets of $3.368 trillion (up from $3.344 trillion). We review the latest data below.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Repurchase Agreement (Repo) holdings in money market funds totaling $1,097.8 billion (up from $1,057.8 billion on Dec. 31), or 32.6% of all assets. Treasury holdings total $851.7 billion (down from $945.1 billion, or 25.3%, and Government Agency securities total $682.0 billion (up from $680.1 billion), or 20.2%. Commercial Paper (CP) totals $257.7 billion (up from $237.6 billion), or 7.7%, and Certificates of Deposit (CDs) total $225.4 billion (up from $194.7 billion), or 6.7%. The Other category (primarily Time Deposits) totals $146.8 billion (up from $115.7 billion), or 4.4%, and VRDNs account for $106.8 billion (down from $112.6 billion), or 3.2%.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $160.7 billion, or 4.8%, in Financial Company Commercial Paper; $57.6 billion or 1.7%, in Asset Backed Commercial Paper; and, $39.3 billion, or 1.2%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($641.9B, or 19.1%), U.S. Govt Agency Repo ($419.2B, or 12.4%), and Other Repo ($36.7B, or 1.1%).

The N-MFP Holdings summary for the 215 Prime Money Market Funds shows: CP holdings of $252.6 billion (up from $232.8 billion), or 30.7%; CD holdings of $225.4B (up from $194.7B), or 27.4%; Repo holdings of $148.1B (up from $140.3B), or 18.0%; Other (primarily Time Deposits) holdings of $86.4B (up from $73.6B), or 10.5%; Treasury holdings of $67.2B (down from $82.4B), or 8.2%; Government Agency holdings of $37.5B (up from $32.5B), or 4.6%; and VRDN holdings of $6.8B (up from $6.6B), or 0.8%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $160.7 billion, or 19.5%, in Financial Company Commercial Paper; $57.6 billion, or 7.0%, in Asset Backed Commercial Paper; and, $34.2 billion, or 4.2%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($45.3B, or 5.5%), U.S. Govt Agency Repo ($66.2B, or 8.0%), and Other Repo ($36.7B, or 4.5%).

Crane Data's latest Money Fund Market Share rankings show assets were higher again for the majority of U.S. money fund complexes in January. Money fund assets rose by $13.8 billion, or 0.4%, last month to $3.226 trillion, and assets have climbed by $135.0 billion, or 4.4%, over the past 3 months. They have increased by $236.2 billion, or 7.9%, over the past 12 months through Jan. 31, 2019. The biggest increases among the 25 largest managers last month were seen by SSgA, Schwab, Dreyfus, and Northern, which increased assets by $5.9 billion, $5.7B, $4.48B, and $3.4B, respectively. We review the latest market share totals below, and we also look at money fund yields in January.

The most noticeable declines in assets among the largest complexes in January were seen by Goldman Sachs, whose MMF assets dropped by $9.4 billion, or -4.5%, Federated, down $3.1 billion, or -1.3%, BlackRock, with a decline of $2.8 billion, or -1.0%, and T. Rowe Price, off $1.8 billion, or -6.5%. Our domestic U.S. "Family" rankings are available in our MFI XLS product, our global rankings are available in our MFI International product. The combined "Family & Global Rankings" are available to Money Fund Wisdom subscribers.

Over the past year through Jan. 31, 2019, Fidelity (up $89.1B, or 15.6%), Vanguard (up $59.1B, or 20.7%), JP Morgan (up $38.5B, or 15.2%), Federated (up $36.0B, or 18.4%), Goldman Sachs (up $31.0B, or 18.6%), and UBS (up $12.6B, or 28.5%) were the largest gainers. These complexes were followed by First American (up $8.6B, or 16.8%), Northern (up $7.1B, or 6.4%), Wells Fargo (up $6.3B, or 5.8%), and PNC (up $2.3B, or 19.3%).

Fidelity, Schwab, Federated, Vanguard, and Morgan Stanley had the largest money fund asset increases over the past 3 months, rising by $32.6B, $28.0B, $21.1B, $17.4B, and $15.2B, respectively. The biggest decliners over 3 months include: BlackRock (down $8.6B, or -3.0%), T Rowe Price (down $5.7B, or -18.4%), Goldman Sachs (down $5.2B, or-2.6%), DFA (down $4.0B, or -19.3%) and Franklin (down $2.0B, or -8.5%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $661.7 billion, or 20.5% of all assets. That was up $624 million in January, up $32.6 billion over 3 mos., and up $89.1B over 12 months. Vanguard ranked second with $343.9 billion, or 10.7% market share (up $1.6B, up $17.4B, and up $59.1B for the past 1-month, 3-mos. and 12-mos., respectively). JPMorgan was third with $292.3 billion, or 9.1% market share (up $769 million, up $10.4B, and up $38.5B). BlackRock ranked fourth with $276.5 billion, or 8.6% of assets (down $2.8B, down $8.6B, and down $15.2B for the past 1-month, 3-mos. and 12-mos.), while Federated remained in fifth with $231.7 billion, or 7.2% of assets (down $3.1B, up $21.1B, and up $36.0B).

Goldman Sachs remained in sixth place with $197.2 billion, or 6.1% of assets (down $9.4B, down $5.2B, and up $31.0B), while Dreyfus held seventh place with $165.4 billion, or 5.1% (up $4.4B, up $3.2B, and down $8.7B). Schwab ($157.3B, or 4.9%) was in eighth place (up $5.7B, up $28.0B and up $1.6B), followed by Northern, which occupied ninth place ($118.2B, or 3.7%, up $3.4B, up $12.2B, and up $7.1B). Wells Fargo was in 10th place ($114.2B, or 3.5%, up $2.5B, up $7.8B, and up $6.3B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Morgan Stanley ($112.1B, or 3.5%), SSgA ($84.8B, or 2.6%), First American ($60.0B, or 1.9%), Invesco ($58.7B, or 1.8%), UBS ($56.7B, or 1.8%), T Rowe Price ($25.5B, or 0.8%), DWS ($23.5B, or 0.7%), Franklin ($21.6B, or 0.7%), Western ($20.9B, or 0.6%) and American Funds ($18.0B, or 0.6%). Crane Data currently tracks 69 U.S. MMF managers.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg, and the Cayman Islands -- are included, the top 10 managers match the U.S. list, except JPMorgan and BlackRock move ahead of Vanguard, Goldman moves ahead of Federated, and Morgan Stanley moves ahead of Northern and Wells.. Our Global Money Fund Manager Rankings include the combined market share assets of our MFI XLS (domestic U.S.) and our MFI International ("offshore") products.

The largest Global money market fund families include: Fidelity ($671.1 billion), J.P. Morgan ($446.1B), BlackRock ($416.5B), Vanguard ($343.9B), and Goldman Sachs ($305.8B). Federated ($240.0B) was sixth and Dreyfus/BNY Mellon ($184.0B) was in seventh, followed by Schwab ($157.3B), Morgan Stanley ($147.9B), and Northern ($142.9B), which rounded out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The February issue of our Money Fund Intelligence and MFI XLS, with data as of 1/31/19, shows that yields inched higher in January across all of our taxable Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 750), was up 2 bps to 2.06% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield was up 9 bps to 2.04%. The MFA's Gross 7-Day Yield increased 3 bps to 2.50%, while the Gross 30-Day Yield rose 9 bps to 2.48%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 2.24% (up 1 basis point) and an average 30-Day Yield of 2.23% (up 9 bps). The Crane 100 shows a Gross 7-Day Yield of 2.51% (up 1 basis point), and a Gross 30-Day Yield of 2.51% (up 10 bps). For the 12 month return through 1/31/19, our Crane MF Average returned 1.58% and our Crane 100 returned 1.77%. The total number of funds, including taxable and tax-exempt, dipped to 941 from 944. There are currently 750 taxable, down by 3, and 191 tax-exempt money funds (unchanged).

Our Prime Institutional MF Index (7-day) yielded 2.26% (up 3 bps) as of Jan. 31, while the Crane Govt Inst Index was 2.14% (also up 3 bps) and the Treasury Inst Index was unchanged at 2.11%. Thus, the spread between Prime funds and Treasury funds is 15 basis points, while the spread between Prime funds and Govt funds is 12 basis points, the same as last month. The Crane Prime Retail Index yielded 2.13% (up 4 bps), while the Govt Retail Index yielded 1.83% (up 5 bps) and the Treasury Retail Index was 1.86% (down 1 basis point). The Crane Tax Exempt MF Index yield slid in January to 0.95% (down 30 bps).

Gross 7-Day Yields for these indexes in January were: Prime Inst 2.67% (up 5 bps), Govt Inst 2.44% (up 3 bps), Treasury Inst 2.42% (down from 2.43%), Prime Retail 2.66% (up 5 bps), Govt Retail 2.44% (up 6 bps), and Treasury Retail 2.43% (down 2 bps). The Crane Tax Exempt Index decreased 31 basis points to 1.44%. The Crane 100 MF Index returned on average 0.19% over 1-month, 0.54% over 3-months, 0.19% YTD, 1.77% over the past 1-year, 0.94% over 3-years (annualized), 0.58% over 5-years, and 0.33% over 10-years. (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.)

The February issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Thursday morning, features the articles: "Green Money Funds Become a Thing, But Big Issues Remain," which looks at BlackRock's pending LEAF launch and issues involving ESG money funds; "Schwab's Marie Chandoha Reflects; Preserving Retail," a Q&A featuring the CEO of Charles Schwab Investment Management; and, "MF University '19 Highlights Asset Recovery, Rising Rates," which reviews our recent "basic training" event in Stamford. We've also updated our Money Fund Wisdom database with Jan. 31 statistics, and sent out our MFI XLS spreadsheet Thursday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our February Money Fund Portfolio Holdings are scheduled to ship on Monday, February 11, and our February Bond Fund Intelligence is scheduled to go out Thursday, February 14.

MFI's "Green Money Funds," article says, "A second money-fund provider is introducing a fund that seeks to meet goals related to environmental issues, in addition to meeting the traditional tenets of preserving safety, liquidity and yield. BlackRock joins DWS, which converted its Variable NAV MMF to an ESG product last summer, in launching a "green" money fund, BlackRock Liquid Environmentally Aware Fund (LEAF)."

It continues, "Meanwhile, State Street Global Advisors' '2019 Global Cash Outlook' cites a number of problems with the concept of an ESG money fund. (See our Feb. 4 News, 'SSGA's 2019 Global Cash Outlook Discusses ESG MMF Challenges, Tech, AI.') SSGA's Pia McCusker says, 'In this year's ... Outlook, we consider innovations in cash management. We look at the potential for filtering cash investments for ESG factors, while satisfying the safety, liquidity, yield and regulatory demands of money market fund management. We also examine emerging trends, including artificial intelligence in cash management and a Fed initiative that could lead to deadline-free, 24-hour money market funds."

Our Schwab "Profile", reads, "This month, MFI interviews Charles Schwab Investment Management CEO Marie Chandoha, who will be stepping down at the end of March 2019. We wanted to ask Chandoha to look back at her tenure at Schwab, which included the extended post-crisis stretch of zero yields, and to get some parting words of wisdom. She tells us about her 'crash course' in cash, the struggle against more onerous money fund reforms and a number of other issues. Our discussion follows."

MFI says, "Talk about your decision to retire." Chandoha responds, "I've been in the business for 35 years and have had a really great run. I've loved being in the industry, but now it's time for my next chapter.... I'm going to spend a little more time with my family and do some traveling. But I also still love the industry. I just want to interface with it in a different way [going forward by] serving on boards."

MFI also asks for "a little history on CSIM." Chandoha tells us, "CSIM has been around for almost 30 years. We actually got started with our money funds, and our very first hire was ... Linda Klingman who [now] heads up our money fund portfolio management. So, it's been a very important business for us from the very beginning.... When I think about our money fund team, we have a diverse group.... For example, Lynn Paschen heads up our Government money fund area, [so there is] definitely a good contingent of women and other diverse individuals."

Next, our Money Fund University recap explains, "Crane Data recently hosted its 9th annual Money Fund University in Stamford, Conn. The 'basic training' event, targeted at those new to the money fund industry, featured primers on interest rates, money market securities, the Federal Reserve, ratings, portfolio management, and money fund regulations. The big themes this year were the comeback of money fund yields and assets, the growth in ultra-short bonds and 'alt-cash,' and regulatory reform in Europe."

MFI includes the sidebar, "Ed Jones Shifts Sweeps." It notes that "Brokerage Edward Jones announced plans to alter its sweep program, and money market funds will no longer be made available to new investors on or after Feb. 9. In a letter entitled, 'Required Notice to All Clients: Cash Management Option Changes,' they explain that the restriction also applies to current investors who 'have not selected the fund as your sweep option for your brokerage [​or retirement] account as of that date.' They 'will no longer be able to do so.'"

Another sidebar, "Not Done Yet: EU Reforms," explains, "European money market funds continue to change fund types and tweak lineups ahead of the revised March 21 deadline for regulatory reforms. (See yesterday's News.) The latest fund managers to announce changes or compliance schedules are Deutsche, Fidelity and UBS. A number of firms have already converted their money funds to be compliant with the pending reforms, including Aviva (9/1/18), BNP Paribas (11/11/18), JP Morgan (11/30/18), BlackRock, Federated, SSGA (all 1/11/19), Morgan Stanley and UBS (both 1/14/19)."

Our February MFI XLS, with Jan. 31, 2019, data, shows total assets rising $14.4 billion in January to $3.227 trillion, after increasing $41.9 billion in December, $64.3 billion in November, and $34.5 billion in October. Our broad Crane Money Fund Average 7-Day Yield rose 3 bps to 2.06% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was up 1 bp to 2.24% (its highest level since Oct. 2008).

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA rose 3 bps to 2.50% and the Crane 100 rose to 2.51%. Charged Expenses averaged 0.44% (up 1 bp) and 0.27% (unchanged), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 29 and 29 days, respectively (up 1 day and unch.). (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

European money market funds continue to change fund types and tweak lineups ahead of the revised March 21 deadline for regulatory reforms. The latest fund managers to announce changes or compliance schedules are Deutsche, Fidelity and UBS. A number of firms have already converted their money funds to be compliant with the pending reforms, including Aviva (9/1/18), BNP Paribas (11/11/18), JP Morgan (11/30/18), BlackRock, Federated, SSGA (1/11/19), Morgan Stanley and UBS (1/14/19). (See our Feb. 1 News, "Fitch Discusses European MMF Reform Delay," our Jan. 22 News, "European MMF Reforms Going Live, or Not? Economist Swipes at RDM Kill Our News," and our Jan. 7 News, "BNY Mellon Converts for European MF Reforms; USD Assets Rise in 2018.")

A letter entitled, "Deutsche Global Liquidity Series plc ('DGLS') shareholder update," discusses, "DGLS money market fund conversions pursuant to Regulation (EU) 2017/1131 of 14 June 2017 on money market funds ('MMFR')." It says, "In light of fresh guidance from the Central Bank of Ireland ('CBI'), we are updating the time schedule for the proposed implementation date for MMFR in respect of DGLS and its sub-funds. In our update of 10 January 2019, which was based on earlier indications from the CBI, we informed all shareholders that the conversion of the relevant DGLS sub-funds in their respective MMFR classifications under the MMFR was intended to take place on a date in March 2019."

Deutsche explains in the January 22 update, "The CBI informed DGLS last week (along with all other money market funds authorised in Ireland) of their expectation that conversion pursuant to the MMFR must now occur in early February 2019. Accordingly, shareholders should note the following revisions to the proposed implementation timetable for DGLS: All relevant DGLS sub-funds shall be made MMFR compliant over the weekend commencing 9 February 2019 with MMFR authorisation from the CBI expected to be received on 11 February 2019."

They continue, "This will conclude the full and final conversion of (i) the Deutsche Managed US Dollar Fund and Deutsche Managed Sterling Fund to LVNAV (Low Volatility Net Asset Value) MMFs and (ii) the Deutsche Managed Dollar Treasury Fund to Public Debt CNAV (Constant Net Asset Value) MMF under the MMFR. An updated version of the Prospectus of DGLS will be published on the Conversion Date with all details of the sub-funds' operation under the MMFR. Aside from this change to Conversion Date, the parameters for conversion of all these DGLS sub-funds to MMFR compliance will remain unchanged."

The update states, "The Deutsche Managed Euro Fund will also convert to an LVNAV MMF on this date and will be permitted by the CBI to continue to operate a 'Reverse Distribution Mechanism' (RDM) provided it has ceased to do so on or before 21 March 2019.... Therefore, the revised Prospectus of DGLS as at the Conversion Date will make provision for a 'sunset clause' regarding the operation of RDM in the Deutsche Managed Euro Fund only."

It adds, "It is intended that the distributing share classes of the Deutsche Managed Euro Fund, which currently utilise RDM be re-structured as accumulating share classes. Subject to investor approval, it is intended that this be implemented over the weekend commencing 16 March 2019 with conversion to accumulating shares effective as of 18 March 2019. Further communications shall be made to affected investors in this regard in due course."

Fidelity Institutional Liquidity Fund plc writes in a "Notification of compulsory transfer of holders of Flex Distributing Shares into Accumulating Shares," "We are writing to you as a holder of Flex Distributing Shares of The Euro Fund (the "Fund"), a subfund of the Company. The purpose of this letter is to notify you of the re-designation of your Flex Distributing Shares as equivalent Accumulating Shares of the Fund on 27 February 2019 (the "Compulsory Transfer Date")."

Fidelity tells us, "The Prospectus provides for the automatic redemption of Flex Distributing Shares by the Manager with the aim of maintaining a constant Net Asset Value, which is a type of share cancellation/reverse distribution mechanism ("RDM") that has been utilised by money market funds in negative yield conditions. The Company is required to take certain measures to ensure compliance with the EU Money Market Fund Regulation (the "MMFR") in light of the European Commission's opinion that RDM is incompatible with the legal framework established by the MMFR. It is intended to update the Prospectus to remove provision for RDM and, given the prevailing low/negative short-term Euro interest rate environment, it will not be possible to maintain a stable Net Asset Value per Share when RDM may no longer be utilised in respect of the Flex Distributing Shares of the Fund."

They say, "As a result, in accordance with the terms of Article 4(h) of the Articles of Association of the Company, the Directors of the Company have determined to re-designate your Flex Distributing Shares as equivalent Accumulating Shares of the Fund on the Compulsory Transfer Date, as follows: Class A and Class F Flex Distributing Share Shares Series 1 and 2 will become Class A Accumulating Shares, while Class B Flex Distributing Shares Series 1 and 2 will become Class B Accumulating Shares.

Also, a February 1 UBS (Irl) Fund plc update explains, "We are writing to you in your capacity as a shareholder of UBS (Irl) Fund plc to inform you in respect of certain changes pursuant to the Money Market Fund Regulation (EU) 2017/1131 ("MMFR"). The MMFR came into force on 20 July 2017 and applies from 21 July 2018. It is a broad set of new regulatory measures that apply to money market funds ("MMFs") established, managed or marketed in the European Union. Under Article 1 of MMFR a MMF is an authorised UCITS that: (i) invests in short-term assets; and (ii) has distinct or cumulative objectives offering returns in line with money market rates or preserving the value of the investment."

It continues, "You will recall that we sent you a separate MMFR communication in respect of proposed updates to the memorandum and articles of association of the Company on 13 December, 2018. This was considered and deemed appropriate by a Special Resolution of Shareholders at an extraordinary general meeting of the Company held on 7 January 2019. As the sub-funds of the Company constitute MMFs, they are required to seek authorisation from the Central Bank of Ireland (the "Central Bank") in accordance with MMFR. The intention of the Company is to be in compliance, save for the use of certain sub-funds of reverse distribution mechanism ("RDM") as further discussed below, with all aspects of MMFR by 18 February 2019. A list of the sub-funds and their proposed and effective date of such implementation designation, once authorised under MMFR, is set out at Appendix I."

UBS comments, "The Central Bank pursuant to Article 44 of MMFR is permitting sub-funds which currently utilise RDM to continue to make use of such mechanisms up and until 21 March 2019. The Company, in respect of the UBS (IRL) Select Money Market Fund – EUR intends to make use of this extended time period and a further revision to the offering document for this sub-fund (which will remove provision for RDM and provide for accumulating T+0 share classes) will be made at a later date prior to 21 March 2019."

They add, "The change under the MMFR will be effective from the day the revised Prospectus and Supplement are approved by the Central Bank which is expected to be on or around 18 February 2019 (the "Effective Date"). Should you wish to do so, Shareholders will have the opportunity to redeem their shares prior to the Effective Date in accordance with the requirements of the Prospectus. Should you have any queries in respect of the above please do not hesitate to contact your usual contact within the Investment Manager."

For more on European Reforms, see the following Crane Data News stories: "Schwab USD LA Goes Govt Ahead of European Reforms; Weekly Holdings" (1/3/19); "Money Fund Average Breaks 2.0%, Yields Rise; BNP Splits European MMFs" (12/27/18); "Money Fund Assets Skyrocket, Break $3 Trillion; UBS on European MMFR" (12/14/18); "JPMorgan Now Live With European Money Fund Reforms; VNAVs SnP AAA" (12/4/18); and "Cash Will Be King in '19 Says GS; BlackRock Update; Europe Rejects RDM" (11/26/18). Finally, let us know if you'd like to see our latest Money Fund Intelligence International, which tracks the European money fund marketplace.

The Weekend Wall Street Journal published a brief entitled, "Two Trendy 'Cash Phrases'," which tells us, "A shift in the markets means investors may hear the following phrases used more often this year: The first is 'Cash as a Reasonable Alternative,' and the second is the acronym CITA, which stands for 'Cash Is the Alternative.' For years, the thought was that most investors shouldn't even bother allocating assets to cash because they wouldn't get any return, says Jurrien Timmer, director of global macro at Fidelity Investments in Boston. That has now changed, he says. Indeed, after decades of playing second fiddle to stocks, bonds or commodities, cash became the top-performing asset class last year."

The brief quotes Timmer, "Back to 1960 there was no single year when cash was the top asset class.... Cash has been No. 2 or No. 3, but never No. 1." It continues, "That is, until 2018. The result is that more U.S. investors now see cash as a reasonable alternative. Wobbly stock prices and rising interest rates have made equities and fixed-income securities less desirable relative to cash than they were once. The S&P 500 lost more than 9% in December alone, while bond prices have swung over the past few months."

The Journal adds, "Meanwhile, the cash-like three-month Treasury bill yields a healthy 2.39% annual rate, up from 0.02% in 2015. Five-year bonds offer slightly more yield but with much more risk.... 'Bonds can still offer diversification,' says Mr. Timmer: 'But in this environment cash has a more viable place as a diversifier.' Why? Bond prices drop when interest rates rise. That doesn't happen with cash."

In other news, the Securities and Exchange Commission finally released its November "Money Market Fund Statistics" summary after a lengthy delay due to the Government shutdown. (Their December report is still pending.) It shows that total money fund assets rose by $89.3 billion in November to $3.253 trillion. Prime MMFs gained $28.4 billion to $771.7 billion, while Govt & Treasury funds increased $55.8 billion to $2.338 trillion. Tax Exempt funds rose $5.1 billion to $143.2 billion. Yields rose for Prime, Government and Tax Exempt MMFs in November. The SEC's Division of Investment Management summarizes monthly Form N-MFP data and includes asset totals and averages for yields, liquidity levels, WAMs, WALs, holdings, and other money market fund trends. We review their latest numbers below.

Overall assets increased $89.3 billion in November, after increasing $8.2 billion in October, $12.1 billion in Sept., $29.9 billion in August, and $15.2 billion in July. Total MMFs decreased by $51.8 billion in June, but increased by $45.6 billion in May and $31.0 billion in April. Over the 12 months through 11/30/18, total MMF assets increased $172.95 billion, or 5.6%. (Note that the SEC's series includes a number of private and internal money funds not reported to ICI or others, though Crane Data tracks most of these.)

Of the $3.253 trillion in assets, $771.7 billion was in Prime funds, which grew by $28.4 billion in November after decreasing by $3.1 billion in October. Prime MMFs increased $13.9 billion in September, $31.2 billion in August and $24.3 billion in July. But they decreased by $8.9 billion in June. Prime funds represented 23.7% of total assets at the end of November. They've increased by $105.6 billion, or 15.8%, over the past 12 months. They've increased by $205.9 billion over the past 2 years. (Over $1.1 trillion shifted from Prime to Government money market funds in the year leading up to October 2016's Money Fund Reforms.)

Government & Treasury funds totaled $2.338 trillion, or 71.9% of assets. They rose $55.8 billion in November, were up $8.3 billion in October, but down $1.9 billion in Sept., $1.8 billion in August, $4.4 billion in July, and $39.4 billion in June. Govt & Treas MMFs are up $70.6 billion over 12 months, or 3.1%. Tax Exempt Funds increased $5.1B to $143.2 billion, or 4.4% of all assets. The number of money funds was 379 in November, down 2 funds from the prior month.

Yields on Taxable MMFs moved higher again in November, their 14th month in a row of increases. The Weighted Average Gross 7-Day Yield for Prime Funds on Nov. 30 was 2.43%, up 6 basis points from the previous month and up 1.11% from November 2017. Gross yields increased to 2.28% for Government/Treasury funds, up 0.05% from the previous month, and up 114 bps from November 2017. Tax Exempt Weighted Average Gross Yields rose to 1.74%; they've increased by 74 bps since 11/30/17.

The Weighted Average Net Prime Yield was 2.25%, up 0.06% from the previous month and up 1.13% since 11/30/17. The Weighted Average Prime Expense Ratio was 0.18% in November (the same as the previous 7 months). Prime expense ratios are down by 2 bps over the past year. (Note: These averages are asset-weighted.)

WALs and WAMs were mixed in November. The average Weighted Average Life, or WAL, was 65.3 days (up 5.6 days from last month) for Prime funds, 87.0 days (down 2.1 days) for Government/Treasury funds, and 29.7 days (down 1.2 days) for Tax Exempt funds. The Weighted Average Maturity, or WAM, was 30.9 days (up 3.4 days from the previous month) for Prime funds, 30.6 days (down 1.6 days) for Govt/Treasury funds, and 27.7 days (down 0.8 days) for Tax-Exempt funds. Total Daily Liquidity for Prime funds was 32.4% in November (up 0.5% from previous month). Total Weekly Liquidity was 48.0% (down 1.8% from the previous month) for Prime MMFs.

In the SEC's "Prime MMF Holdings of Bank-Related Securities by Country, November 2018" table, the largest entries included: Canada with $103.3 billion, the U.S. with $82.9 billion, Japan with $71.1 billion, France with $68.3B, and the U.K. with $49.4B. Sweden ($43.1B), Germany ($39.6B), Australia/New Zealand ($39.1B), the Netherlands ($23.8B), and Switzerland ($21.2B) rounded out the top 10 countries.

The gainers among the "Change in Prime MMF Bank-Related Securities, by Country" for the month included: the U.S. (up $6.0 billion), Australia/New Zealand (up $5.3B), Canada (up $4.8B), UK (up $3.1B), Japan (up $2.2B), Belgium (up $2.1B), Switzerland (up $804 million), Spain (up $402M), Singapore (up $368M), Norway (up $272M), and Sweden (up $105M). The biggest drops came from France (down $9.9B), the Netherlands (down $3.1B), Other (down $2.0B), Germany (down $765M), and China (down $758M). The SEC's "Trend in Prime MMF Holdings of Bank-Related Securities by Major Region" table shows Europe had $268.8B (down $8.1B from last month), while the Eurozone subset had $146.2B (down $11.8B). The Americas had $186.8 billion (up $10.6B), while Asia Pacific had $124.8 billion (up $6.3B).

The "Trends in Prime MMF Portfolio Composition" chart shows that of the $771.7 billion in Prime MMF Portfolios as of Nov. 30, $263.0B (34.2%) was in CDs (up from $262.8B), $190.3B (24.8%) was in Government securities (including direct and repo) (up from $172.4B), $106.6B (13.9%) was held in Non-Financial CP and Other Short Term Securities (down from $107.4B), $156.4B (20.4%) was in Financial Company CP (down from $156.7B), and $51.9B (6.8%) was in ABCP (up from $46.8B).

The Proportion of Non-Government Securities in All Taxable Funds was 18.9% at month-end, no change from October. All MMF Repo with the Federal Reserve fell to $2.5B in November from $4.8B the previous month. Finally, the "Trend in Longer Maturity Securities in Prime MMFs" tables shows 40.7% were in maturities of 60 days and over (up from 36.2%), while 8.3% were in maturities of 180 days and over (up from 8.0%).

State Street Global Advisors recently published its "2019 Global Cash Outlook," which discusses rates, credit, Prime, ESG and technology. Subtitled, "Innovations in Cash," the introduction says, "Over the past year, US dollar cash investors have benefitted from multiple Federal Reserves (Fed) rate hikes, high liquidity and stable credit conditions. In 2019, this benefit will likely continue but at a more balanced pace from the overarching global theme of tightening monetary policy. This will support gradually rising yields in US dollar money market funds. Upward pressure on short-term rates though, may also prompt the Fed to stop rolling government debt off its balance sheet in 2019; this could fuel a widening yield differential between government and prime funds."

Pia McCusker, Senior Managing Director, Global Head of Cash Management, explains, "Over the past 12 months, investors have increasingly moved cash into prime funds, and we believe there are compelling reasons for more investors to consider the shift going forward. US dollar assets under management has risen from $372 billion, when money market fund reform took effect in November 2016, to $536 billion in the fourth quarter of 2018. This trend has been driven by yield differentials that have, over time, more than compensated for net asset value fluctuations."

She adds, "Finally, in this year's Global Cash Outlook, we consider innovations in cash management. We look at the potential for filtering cash investments for ESG factors, while satisfying the safety, liquidity, yield and regulatory demands of money market fund management. We also examine emerging trends, including artificial intelligence in cash management and a Fed initiative that could lead to deadline-free, 24-hour money market funds. These could be exciting innovations for the industry to ruminate in 2019."

SSGA Portfolio Strategist Will Goldthwait discusses, "The Cash ESG Challenge." He writes, "Cash and short duration strategies operate under regulatory and investor-driven requirements to maintain high levels of liquidity and security. As such, they seek the safest, most liquid, short-term assets that offer market yield. In addition to sovereign debt, prime funds hold significant concentration in about 30 AA- or A-rated global banks that access the market daily."

It continues, "This raises challenges in both scoring bank debt and in constructing the portfolio. As part of our core commitment to responsible investing, State Street has deep ESG research expertise, particularly in the areas of ESG scoring and building portfolios using ESG filters. Our research is ongoing, however, our team recognizes some challenges that are inconsistent with our credit process and has reached the following interim conclusions: While it's feasible to score a bank's ESG performance, the score would depend heavily on governance, as it is difficult to accurately differentiate the environmental and social factors for the global bank assets that MMFs hold."

SSGA tells us, "Applying an ESG filter may mean limiting or excluding a handful of banks from the MMF's approved list. Given the small universe and the regulatory need to limit issuer concentration to 5% of holdings, the fund would likely need to boost exposure to other prime instruments, such as asset-backed commercial paper (ABCP) or alternative repurchase agreements (repo) that are secured by non-governmental collateral and municipal securities. While these assets are attractive diversifiers, they pose other ESG monitoring challenges.... Our research team is continuing to investigate these and other challenges, to ensure that an ESG cash portfolio would truly reflect responsible investing principles while satisfying core money fund requirements."

They add, "We are also investigating whether potential filters would produce a durable and significant difference when compared to the MMF universe. Finally, we are seeking input from clients regarding which ESG factors matter most to them.... In the meantime, companies with significant cash balances that seek an ESG cash strategy can satisfy this need through a separately managed account. When only a single investor is subscribing and redeeming funds, an ESG filter can be applied with more meaningful results and less concern about the impact on liquidity, security and yield."

Goldthwait also comments on, "The fourth industrial revolution -- fusing the digital and physical worlds -- is coming to cash. We believe that short-term fixed income and cash investment management are poised to evolve rapidly over the next few years, perhaps even more so than it has over the past two decades. On a basic level, new features will include centralized trading platforms and enhanced liquidity and risk monitoring. In this paper, we address two major developments in cash management. First, we consider why money market funds (MMFs) must close each business day; is it possible, instead, to offer global, non-stop services the way retail banking does? Second, we explore how artificial intelligence and robotic investing are transforming MMFs."

He explains, "MMFs emerged in 1972 as a better way to manage excess cash left in brokerage accounts, using an accounting method that would enable a market rate of return. Since then, they have served investors looking for extra yield or seeking diversification away from banks. But institutional MMFs have not offered clients the same flexibility as retail banking.... [I]nstitutional cash investors must wait to transact during business hours. Why? The main limitation is the Federal Reserve's (Fed's) payment system, which serves as the financial plumbing of the MMF business."

The section adds, "In an October speech, Fed Governor Lael Brainard announced a Fed proposal that would address the 'growing gap between the transaction capabilities we need and expect in the digital economy -- fast, convenient, and accessible to all -- and the underlying settlement capabilities.' The new system would introduce 'real-time gross settlement.'

Finally, SSGA writes, "Artificial intelligence (AI) and robo advisors are the talk of today's asset management industry.... What does this mean for cash investments? We know that rules-based investing can help take the emotion out of investment decisions.... But algorithms and AI can assist on a more fundamental level, simplifying mundane tasks like trade entry, and eliminating the potential for human error.... What about the more complex tasks? Portfolio managers digest large quantities of information every day; AI is now helping sort that information, so they quickly see what's most important. Legal departments are using AI to dramatically reduce the time it takes to handle credit agreements."

They add, "Managing cash flows within a MMF is the portfolio manager's single biggest challenge.... AI is helping with this as well, analyzing current and historical data to help them make better investment decisions.... [But] we don't think the human element of portfolio management will ever be eliminated. It will be complimented by AI to further boost client outcomes."

Yesterday, Fitch Ratings hosted a webcast, "Update on Delays to European MMF Reform Process," which told listeners that most European money funds that have pushed back their compliance dates under the new regulations are targeting February conversion dates. Alastair Sewell and Minyue Wang of Fitch reviewed recent developments, and responded to questions about the delay in instituting changes for Irish and Luxembourg fund regulators. (See our Jan. 22 News, "European MMF Reforms Going Live, or Not? Economist Swipes at RDM Kill Our News.")

The rating agency's "European MMF Reform: January Dashboard," notes, "The effective deadline for MMF reform conversion (involving more than EUR280 billion of European short-term money market funds, of which around 25% is euro-denominated) has been pushed back to March 21 from Jan. 21, 2019. We understand that around 80% of the remaining conversions will occur in February, with a small amount (around 2%) in March and the timing of the remainder to be confirmed."

Re-submitted applications by euro-denominated MMFs to comply with directives to remove use of reverse-distribution mechanisms, also known as share cancellations previously employed by funds showing negative yields, will result in "fewer choices for investors in euro-denominated funds than in funds denominated in other currencies. Funds have to be compliant by March 21, after notifying their shareholders of the approved conversions," it detailed.

Fitch has observed recent asset outflows from euro funds that it rates. It stated, "Looking at weekly flows (% of AUM) by currency since end-October 2018, euro flows have been negative in 2019 so far. However, early January euro outflows are similar to last year's," due mainly to seasonal factors. It added, "Fitch does not anticipate liquidity issues at this stage given the ample O/N (31% on average) and 7D (38% on average) liquidity levels held by euro funds, but we will monitor developments closely."

The presentation affirmed that "Fitch considers MMFs [to be] cash and cash-equivalent under its corporate rating criteria." It added that AMF, the French regulator, has modified its position, now stating that "funds authorised under the MMF Regulation would benefit from a presumption of eligibility for classification as cash equivalents in investors' IFRS accounts."

Options for fund managers were also cited. "The end of RDM renders euro-denominated LVNAVs and public-debt CNAVs with distributing (or stable price) share classes untenable. Potential solutions include converting euro CNAVs to short-term variable NAV funds or LVNAVs with accumulating ('decumulating' in fact given the negative yield environment in euros) share classes only. Accumulating (variable price) share classes comprised only 22% of euro Prime AUM to be converted, with the rest being distributing share classes," as of Jan. 11, said Fitch.

In other news, ICI's latest "Money Market Fund Assets" report shows that money fund assets fell in the latest week. Prior to this week, MMFs had posted gains in 12 out of 14 weeks, and they've still increased by $156.3 billion, or 5.4% since the last week in October. ICI's weekly series shows Retail MMFs decreasing $3.3 billion, or -0.3%, while Institutional MMFs dipped by $10.2 billion, or -0.5%.

They write, "Total money market fund assets decreased by $13.53 billion to $3.04 trillion for the week ended Wednesday, January 30, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $11.23 billion and prime funds increased by $388 million. Tax-exempt money market funds decreased by $2.69 billion." Total Government MMF assets, including Treasury funds, stood at $2.302 trillion (75.8% of all money funds), while Total Prime MMFs reached $595.0 billion (19.6%). Tax Exempt MMFs totaled $141.3 billion, or 4.7%.

ICI explains, "Assets of retail money market funds decreased by $3.31 billion to $1.19 trillion. Among retail funds, government money market fund assets decreased by $3.62 billion to $695.71 billion, prime money market fund assets increased by $2.99 billion to $359.00 billion, and tax-exempt fund assets decreased by $2.68 billion to $131.96 billion." Retail assets account for over a third of total assets, or 39.1%, and Government Retail assets make up 58.6% of all Retail MMFs.

The release adds, "Assets of institutional money market funds decreased by $10.22 billion to $1.85 trillion. Among institutional funds, government money market fund assets decreased by $7.61 billion to $1.61 trillion, prime money market fund assets decreased by $2.60 billion to $236.04 billion, and tax-exempt fund assets decreased by $12 million to $9.38 billion. Institutional assets accounted for 60.9% of all MMF assets, with Government Institutional assets making up 86.7% of all Institutional MMF totals.