News Archives: November, 2020

A week ago, Crane Data hosted its most recent virtual event, European Money Fund Symposium Online, which featured a series of discussions on European and "offshore" money market mutual fund topics. (See our Nov. 23 News, "European MFS Online: IMMFA'​s Iommi Says MMFs Resilient During Crisis.") During the "French & Continental Money Fund Update" panel, Alastair Sewell of Fitch Ratings gave an update on Asian money funds, focusing specifically on China. We quote from his remarks below. (The replay is available here in case you missed it, and join us for our next event, "Money Fund Wisdom Demo & Training," on Dec 16, 1-2pmET.)

Sewell begins, "The first observation I wanted to make is that the relative growth rate has slowed really quite dramatically in China. If you look back a few years ago, China was growing extremely rapidly in terms of assets under management, and the share of China in the global asset pools was increasing very dramatically as well. Now, growth has continued in China; it has increased slowly over time. There's been some changes recently. But what's interesting is that the rest of the world has actually grown a lot faster in recent years, and a key part of that has been the fact that there have been such significant inflows into money market funds in the other regions. Obviously, there was that period in March of volatility, but overall, when you simply look at the headline figures, the growth in other parts of the world has actually begun to outpace China."

He continues, "Let's unpack that a little bit and dig into some of the issues in China. In terms of assets in China, you can see that they peaked back in late 2018, at around 9 trillion Chinese yuan. Since then, they declined steadily for a period of time before the Covid event broke in the early part of the year. That led to a very conventional investor response to market stress, which was to move out of risk assets and into cash and into low risk assets. And we saw that dynamic playing out clearly in China with the increase in allocation to money market funds. We saw that allocation, in fact, in other markets around Asia as well. `What was quite interesting to observe was how the Covid shock spread around the world from its initial outbreak in Asia, and you can see that in money fund flows in various different countries as [it] got closer to Europe, then the U.S., this response -- the dash for cash."

Sewell says, "Current assets on management in China are 7.2 trillion Chinese yuan at the end of September, which is roughly 1.1 trillion US dollars. Which is quite interesting because given the fact that there are no government funds in China, I believe that would actually make China the largest prime money market fund domicile in the world ... and Yu'e Bao, the monster money market fund in China, is the world's largest prime money market fund.... It has been shrinking, so maybe not forever."

Referring to his slides, he explains, "You see a pattern of various spikes of inflows turning neutral [then] various spikes of outflows from money market funds. Why is this happening? Well, there are really three important drivers. Number one, yields. Yields on Chinese money market funds have been falling fairly steadily. They've actually increased since May of this year, but they have been falling fairly steadily for a sustained period of time. Number two, the spread between bank deposits and money market fund yields has been compressing and in fact, went negative for a period of time. So therefore, the relative benefit of the money market fund compared to a deposit for those investors, and we know these are retail investors who tend to be yield oriented, it's definitely a factor. Then number three ... is the fact that the Chinese A-share market was roaring in the early part of the year and there was certainly a reallocation effect with investors, a post-Covid event pulling cash out of money market funds and putting that into the Chinese A-share market."

Sewell comments, "This yield-seeking behavior, we think it may well increase fund risks. If you look at the maturity profile of the Chinese money market funds ... for Chinese money market funds we are dealing with a different world, of course. They have a relative short maturity profile. And in fact, if you were to put this into WAM language, the average WAM across the industry is well below the maximum amount, which is 120 days. So, there is the possibility that funds may seek to extend WAM ... with the yield curve to add incremental return."

He states, "The other factor ... is leverage. You did hear that correctly, leverage. Chinese money market fund regulation allows funds to lever, structurally lever rather, operational overdraft up to 20 percent. And the fact is, the vast majority of funds in China do use leverage to some extent. On average, it's around about five percent, but you can see the peak line on the chart that shows that there are some funds out there that will actively use the full regulatory risk bucket afforded to them, and use that leverage out to the 20 percent mark. So, in our view, this clearly increases risks. If a fund extends maturity, if it increases leverage and then moves into an outflow environment, the fund will face a cornucopia of challenges."

Finally, Sewell adds, "Obviously, China is the giant panda in the Asian market, it has the vast majority of assets. But when you dig a little bit closer, you'll see that there are actually money market funds represented in many other jurisdictions." Sewell's slides list 14 Asian countries with MMFs present, including: China (with 69% of Asian MMF assets), Japan (8%), South Korea (7%), India (6%) and Other (10%).

Fitch Ratings also recently released a report entitled, "Assessing Future Money Market Fund Regulatory Scenarios." Their update explains, "Market stress in March 2020 put pressure on some money market funds' (MMFs) liquidity positions and net asset values (NAVs), and in turn MMFs' behaviour had a material impact on short-term markets. Fitch Ratings believes the MMF sector, and hence MMF ratings, could have been more adversely affected if not for the policy measures in March 2020."

They explain, "The Financial Stability Board (FSB) has also recently highlighted the significant effect of central bank facilities in mitigating stress on MMFs, underlining the coming regulatory focus on MMFs. The previous episode of severe stress affecting MMFs in 2008 led to significant regulatory changes. The Securities and Exchanges Commission, Federal Reserve, ECB and other regulators and policy makers have called for a review of MMF regulation. The FSB stated on 17 November 2020 that it will: 'make policy proposals, in light of the March experience, to enhance MMF resilience including with respect to the underlying short-term funding markets.' It expects to make these proposals by the end of 2021. Specifically, it identifies 'liquidity risks, core functions and aspects of the structure or regulations in nongovernment MMFs which experienced large outflows and contributed to the stress in short-term funding markets' as areas for investigation."

Fitch writes, "This report reviews some of the potential regulatory changes that have been discussed by market participants following the most recent stress and their potential impacts on ratings. Fitch cannot predict the probability of regulatory change, nor which particular proposal (if any) is likely to be adopted. Rather, Fitch is simply examining the potential implications for its MMF ratings of some of the potential changes."

The report adds, "Market participants and regulators have pointed to the role that securities dealers play in the intermediation of short-term markets, and that dealers' stepping back from intermediating these markets impacted liquidity during the recent stress. Accordingly, any market structure changes enacted that improved the incentives for dealers to continue intermediating in short-term markets during stress periods could be beneficial for secondary market liquidity and hence for MMFs' ability to sell securities, if needed, to meet redemption requests. These developments, if realised, would be relevant in Fitch's rating analysis because it rates MMFs both to their ability to preserve principal and provide timely liquidity."

The ICI released its monthly "Trends in Mutual Fund Investing" and its "Month-End Portfolio Holdings of Taxable Money Funds" for October 2020 yesterday. The former report shows that money fund assets decreased by $47.6 billion to $4.357 trillion in October, after decreasing $118.4 billion in September, $56.7 billion in August, $55.4 billion in July and $133.5 billion in June. Prior to this, assets increased $31.8 billion in May, $399.4 billion in April and $690.6 in March. For the 12 months through Oct. 31, 2020, money fund assets have increased by a massive $863.5 billion, or 25.5%. (Month-to-date in November, MMF assets have decreased by $28.0 billion through 11/23, according to our MFI Daily.)

ICI's monthly "Trends" release states, "The combined assets of the nation's mutual funds decreased by $334.62 billion, or 1.5 percent, to $21.82 trillion in October, according to the Investment Company Institute's official survey of the mutual fund industry. In the survey, mutual fund companies report actual assets, sales, and redemptions to ICI.... Bond funds had an inflow of $44.96 billion in October, compared with an inflow of $38.61 billion in September.... Money market funds had an outflow of $47.68 billion in October, compared with an outflow of $118.56 billion in September. In October funds offered primarily to institutions had an outflow of $57.18 billion and funds offered primarily to individuals had an inflow of $9.50 billion."

ICI's latest statistics show that both Taxable MMFs and Tax Exempt MMFs lost assets last month. Taxable MMFs decreased by $46.1 billion in October to $4.245 trillion. Tax-Exempt MMFs decreased $1.5 billion to $111.9 billion. Taxable MMF assets increased year-over-year by $863.6 trillion (25.5%), while Tax-Exempt funds fell by $25.3 billion over the past year (-18.4%). Bond fund assets increased by $34.0 billion in October (0.6%) to $5.002 trillion; they've risen by $386.2 billion (8.4%) over the past year.

Money funds represent 20.0% of all mutual fund assets (up 0.1% from the previous month), while bond funds account for 22.9%, according to ICI. The total number of money market funds was 347, down three from the month prior and down from 368 a year ago. Taxable money funds numbered 270 funds, and tax-exempt money funds numbered 77 funds.

ICI's "Month-End Portfolio Holdings" confirms a modest increase in CD and Notes, and drops in all other sectors last month. Treasury holdings in Taxable money funds remain in first place among composition segments since surpassing Repo in April. Treasury holdings decreased by $46.6 billion, or -2.0%, to $2.228 trillion, or 52.5% of holdings. Treasury securities have increased by $1.239 trillion, or 125.2%, over the past 12 months. (See our November 12 News, "November MF Portfolio Holdings: Repo, Agencies, Treas Plunge; TDs Up.")

Repurchase Agreements were in second place among composition segments; they decreased by $39.5 billion, or -4.0%, to $959.4 billion, or 22.6% of holdings. Repo holdings have dropped $179.5 billion, or -15.8%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $31.3 billion, or -4.5%, to $668.7 billion, or 15.8% of holdings. Agency holdings have fallen by $65.6 billion, or -8.9%, over the past 12 months.

Certificates of Deposit (CDs) stood in fourth place; they increased by $8.3 billion, or 4.6%, to $188.7 billion (4.4% of assets). CDs held by money funds shrunk by $90.1 billion, or -32.3%, over 12 months. Commercial Paper remained in fifth place, down $2.7 million, or -1.6%, to $170.1 billion (4.0% of assets). CP has decreased by $72.5 billion, or -29.9%, over one year. Other holdings decreased to $32.5 billion (0.8% of assets), while Notes (including Corporate and Bank) were down to $5.1 billion (0.1% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 39.965 million, while the Number of Funds was down two at 270. Over the past 12 months, the number of accounts rose by 3.563 million and the number of funds decreased by 18. The Average Maturity of Portfolios was 45 days, unchanged from September. Over the past 12 months, WAMs of Taxable money have increased by nine.

In related news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of November 20) includes Holdings information from 77 money funds (up 5 from a week ago), which represent $1.958 trillion (down from $2.239 trillion) of the $4.642 trillion (42.2%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website.)

Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.069 trillion (down from $1.237 billion a week ago), or 54.6%, Repurchase Agreements (Repo) totaling $455.8 billion (down from $523.7 billion a week ago), or 23.3% and Government Agency securities totaling $244.5 billion (down from $291.8 billion), or 12.5%. Commercial Paper (CP) totaled $74.3 billion (up from $63.2 billion), or 3.8%, and Certificates of Deposit (CDs) totaled $37.8 billion (down from $60.4 billion), or 1.9%. The Other category accounted for $52.8 billion or 2.7%, while VRDNs accounted for $23.7 billion, or 1.2%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.072 trillion (54.7% of total holdings), Federal Home Loan Bank with $131.0B (6.7%), BNP Paribas with $62.3B (3.2%), Fixed Income Clearing Corp with $47.6B (2.4%), Federal Farm Credit Bank with $41.7B (2.1%), Federal National Mortgage Association with $39.2B (2.0%), RBC with $35.5B (1.8%), JP Morgan with $34.5B (1.8%), Federal Home Loan Mortgage Corp with $30.8B (1.6%) and Credit Agricole with $28.6B (1.5%).

The Ten Largest Funds tracked in our latest Weekly include: Goldman Sachs FS Govt MM ($163.3 billion), BlackRock Lq FedFund ($163.0B), Fidelity Inv MM: Govt Port ($145.9B), Federated Hermes Govt Obl ($122.0B), BlackRock Lq T-Fund ($101.0B), Morgan Stanley Inst Liq Govt ($85.3B), Goldman Sachs FS Treas Instruments ($82.2B), First American Govt Oblg ($79.4B), Dreyfus Govt Cash Mgmt ($74.2B) and State Street Inst US Govt ($65.6B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets dropped by $73.6 billion in October to $4.789 trillion, the fifth decrease in a row. (Month-to-date in November through 11/20, assets have decreased by $39.0 billion according to our MFI Daily.) The SEC shows that Prime MMFs fell by $30.7 billion in October to $962.0 billion, Govt & Treasury funds dropped by $41.4 billion to $3.706 trillion and Tax Exempt funds decreased $1.5 billion to $119.6 billion. Yields inched lower again in October. 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.

October's overall asset decrease follows declines of $117.8 billion in September, $57.0 billion in August, $66.4 billion in July and $127.3 billion in June, and increases of $31.0 billion in May, $461.6 billion in April and $704.8 billion in March. Over the 12 months through 10/31/20, total MMF assets have increased by an incredible $851.0 billion, or 21.6%, according to the SEC's series. (Note that the SEC's series includes a number of internal money funds not tracked by ICI, though Crane Data includes most of these in its collections.)

The SEC's stats show that of the $4.789 trillion in assets, $962.0 billion was in Prime funds, down $30.7 billion in October. This follows decreases of $145.6 billion in September (when Vanguard converted its massive Prime MMF to Govt) and $7.1 billion in August, and increases of $16.4 billion in July, $21.3 billion in June, $50.6 billion in May and $105.2 billion in April. Prime funds saw decreases of $124.5 billion in March and $13.9 billion in February. Prime funds represented 20.1% of total assets at the end of October. They've decreased by $143.5 billion, or -13.0%, over the past 12 months.

Government & Treasury funds total $3.708 trillion, or 77.4% of assets. They decreased $41.4 billion in October, after rising $35.3 billion in September and falling $49.3 billion in August and $42.6 billion in July. They plummeted $145.1 billion in June, fell $18.6 billion in May, and skyrocketed $347.3 billion in April and $838.3 billion in March. Government & Treasury funds increased $32.0 billion in February, but fell $31.4 billion in January. Govt & Treasury MMFs are up a staggering $1.014 trillion over 12 months, or 37.6%. Tax Exempt Funds decreased $1.5 billion to $119.6 billion, or 2.5% of all assets. The number of money funds was 351 in October, down one from the previous month, and down 21 funds from a year earlier.

Yields for Taxable MMFs were lower again in October. Steady declines over the past 19 months follow 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on October 31 was 0.17%, down 3 basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.21%, down 3 basis points. Gross yields were 0.16% for Government Funds, down a basis point from last month. Gross yields for Treasury Funds were also down a basis point at 0.16%. Gross Yields for Muni Institutional MMFs were down a basis point to 0.16% in October. Gross Yields for Muni Retail funds were down a basis point at 0.22% in October.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.10%, down 3 bps from the previous month and down 1.80% since 10/31/19. The Average Net Yield for Prime Retail Funds was 0.03%, down a basis point from the previous month and down 1.77% since 10/31/19. Net yields were 0.02% for Government Funds, unchanged from last month. Net yields for Treasury Funds were also unchanged from the previous month at 0.01%. Net Yields for Muni Institutional MMFs were unchanged from September at 0.07%. Net Yields for Muni Retail funds were down a basis point at 0.03% in October. (Note: These averages are asset-weighted.)

WALs and WAMs were mixed in October. The average Weighted Average Life, or WAL, was 60.4 days (up 1.9 days from last month) for Prime Institutional funds, and 59.3 days for Prime Retail funds (up 2.5 days). Government fund WALs averaged 101.1 days (up 0.2 days) while Treasury fund WALs averaged 97.8 days (down 3.4 days). Muni Institutional fund WALs were 18.2 days (down 0.2 days), and Muni Retail MMF WALs averaged 32.3 days (down 2.1 days).

The Weighted Average Maturity, or WAM, was 41.7 days (up 1.6 days from the previous month) for Prime Institutional funds, 51.1 days (up 1.9 days from the previous month) for Prime Retail funds, 44.4 days (up 1.4 days) for Government funds, and 46.9 days (down 1.5 days) for Treasury funds. Muni Inst WAMs were up 0.1 days to 17.7 days, while Muni Retail WAMs decreased 2.0 days to 30.9 days.

Total Daily Liquid Assets for Prime Institutional funds were 53.6% in October (up 0.5% from the previous month), and DLA for Prime Retail funds was 37.2% (down 4.8% from previous month) as a percent of total assets. The average DLA was 63.4% for Govt MMFs and 94.8% for Treasury MMFs. Total Weekly Liquid Assets was 65.6% (unchanged from the previous month) for Prime Institutional MMFs, and 49.2% (down 1.8% from the previous month) for Prime Retail funds. Average WLA was 77.8% for Govt MMFs and 98.3% for Treasury MMFs.

In the SEC's "Prime Holdings of Bank-Related Securities by Country table for October 2020," the largest entries included: Canada with $93.7 billion, Japan with $86.3 billion, France with $82.3 billion, the U.S. with $63.9B, Germany with $38.9B, the U.K. with 35.2B, the Netherlands with $30.0B, Switzerland with $21.8B and Aust/NZ with $18.6B. The biggest gainers among the "Prime MMF Holdings by Country" were: France (up $6.7 billion), Germany (up $4.5B) and Switzerland (up $3.2B). The biggest decreases were: Canada (down $8.3B), the U.S. (down $8.0B), the U.K. (down $7.9B), the Netherlands (down $7.2B), Japan (down $4.5B) and Aust/NZ (down $0.9B).

The SEC's "`Prime Holdings of Bank-Related Securities by Major Region" table shows Europe had $90.7B (down $7.7B from last month), the Eurozone subset had $159.5B (up $6.4B). The Americas had $158.1 billion (down $16.4B), while Asia Pacific had $117.1B (down $6.1B).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $960.1B billion in Prime MMF Portfolios as of October 31, $419.2B (43.7%) was in Government & Treasury securities (direct and repo) (down from $455.2B), $215.9B (22.5%) was in CDs and Time Deposits (up from $212.1B), $141.2B (14.7%) was in Financial Company CP (down from $143.4B), $135.0B (14.1%) was held in Non-Financial CP and Other securities (up from $134.9B), and $48.8B (5.1%) was in ABCP (down from $53.4B).

The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $190.8 billion, Canada with $126.4 billion, France with $204.4 billion, the U.K. with $73.1 billion, Germany with $20.5 billion, Japan with $117.8 billion and Other with $44.1 billion. All MMF Repo with the Federal Reserve fell by $0.8 billion in October to $0.0 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.8%, Prime Retail MMFs with 4.3%, Muni Inst MMFs with 3.1%, Muni Retail MMFs with 6.0%, Govt MMFs with 14.3% and Treasury MMFs with 14.9%.

Crane Data hosted its most recent virtual event, European Money Fund Symposium Online Thursday, which featured a series of discussions on European and "offshore" money market mutual fund topics. During our "Major Issues in European MMFs" panel, Veronica Iommi of the Institutional Money Market Funds Association gave a "brief 2020 update on money market funds in Europe from IMMFA's perspective with a "focus on the impact of the covid-19 pandemic [and] our role as a voice to the industry." We quote from her remarks below. (Thanks again to our EMFS Online attendees, speakers and sponsors! The replay is available here in case you missed it.)

Iommi says, "IMMFA is the Institutional Money Market Funds Association, originally formed 20 years ago. It's the only trade association in Europe dedicated to money market funds. Our core objective is to promote and support the development and integrity of the money market funds industry. We do this by engaging with policymakers and regulators, educating investors, providing regular data on members funds and overarching all of this, providing a centralized point of contact information and expertise for relevant stakeholders. Our members comprise full members, which are fund managers who manage at least one fund meeting the IMMFA criteria, and associate members which provide services to IMMFA managers or funds such as fund administrators or rating agencies."

She explains, "The primary objectives of a money market fund are the preservation of capital and the provision of liquidity; yield is a secondary consideration. They operate within a highly prescriptive environment. IMMFA funds specifically are triple-A rated and primarily low volatility funds known as LVNAV. Above all, money market funds perform a vital role in channeling liquidity into the real economy. They help businesses and institutions manage their cash more efficiently by creating a pool of cash, which in turn facilitates short term borrowing.... Cash rich investors put money into money market funds ... such investors include corporate pension funds, local authorities and development banks. [Issuers to MMFs include] highly rated and include large banks, corporates and sovereigns."

Iommi comments, "As we've heard from the previous speakers, the money market funds universe in Europe consists of the variable, VNAV, part and the constant net asset value, or essentially the LVNAV part. The VNAV industry is ... predominantly French funds, but also includes funds in places such as Switzerland.... The other large share consists of IMMFA money market funds ... 95% of these IMMFA funds are low volatility LVNAV funds with some public debt CNAV funds. Both types ... have constant net asset value as opposed to the variable net asset value. With regard to IMMFA money market funds, US Dollar funds are the largest, followed by Sterling and Euro. But what you will see is that both VNAV and LVNAV sectors have grown steadily over recent years."

Her slides show "Total assets under management reaching over E828 billion, having peaked in July at E890 billion," and the investor base for money market funds. She states, "Perhaps unsurprisingly, the UK accounts for a very high percentage IMMFA funds' distribution, 44%.... The number also reflects the size of the Sterling market money market funds, which I just mentioned, account for around one third of IMMFA funds. A third of a third is sold into the rest of Europe. And here we breakout just the larger areas of distribution, which include 12% sold into Benelux and 4% into Ireland.... Approximately 25% of funds are sold outside the EU."

Iommi continues, "The types of investors [include] corporates and funds, each account for just under a third each. Pension funds are a significant part of that fund category. Third party, 14%, is where money market funds are sold over platforms, which is quite common. And as you can see, insurance companies are also very active, constituting 8%, as are financial institutions, which could be entities such as private banks or securities lenders. And then, of course, we have public sector investors.... The 2017 EU money market fund regulation introduced new fund categories and enhanced investor protections, in particular with respect to new constant net asset value fund types, LVNAV and PDCNAV."

She asks, "What about Covid-19? How have money market funds fared during this storm? As we all know, the Covid-19 pandemic rapidly led to an unprecedented economic shock, which resulted in severe liquidity pressure in global financial markets. Like all financial markets, the money market funds sector was impacted. Unlike 2008, this was not a credit crisis but a liquidity crisis. The quality of money market fund assets was not affected since IMMFA money market funds own very high quality, high rated paper as we've discussed."

Iommi tells us, "Many money market funds initially faced increased redemptions, and these were driven by investors unexpected needs for cash as the impact of lockdown began to be felt, including financing needs and increased margin calls due to market volatility. This situation was exacerbated by challenging liquidity conditions in the secondary markets. We'll go on to show, notwithstanding these challenges, money market funds proved resilient. Once markets stabilized and investors had cash again, they returned to money market funds."

She explains, "In March ... assets under management dropped sharply; in the third week of March, they dropped 5%. But since then have recovered and continued healthy growth, reaching a peak of ... E890 billion in July. So, we feel that this shows continued investor confidence in the underlying money market fund operating model. And in this respect, this crisis was very different from the 2008 global financial crisis, where investors were worried about their credit exposure. In March, it was not about credit concerns, it was about investors needing their cash back for reasons that could not have been foreseen. As you can see here, once they had cash again, they very quickly resumed investing in money market funds."

Iommi also says, "Whilst there was a net outflow in March, experience varied by fund type and by fund currency. We can see the LVNAV funds by currency ... you have the U.S. dollar funds, which were the worst hit, dropping 22%. U.S. dollar funds tend to be more influenced by US norms and behavior because there's often a connection between the domestic and the offshore investor bases. And in the U.S. markets, some of these outflows were investors switching into other money market funds, which we'll look at in a moment. The sterling market ... reacted a little bit later, falling 8% over the course of a week before recovering its losses the following week. Euro was different again. Euros went into the crisis on a strong uptrend, so had a bit further to fall, 15%, but also recovered very quickly."

She explains, "As I just mentioned, U.S. dollar funds saw the most pressure. This was a reflection of the U.S. market where even the most liquid market in the world, U.S. Treasuries, were impacted. In the U.S. domestic market, there was a pronounced move out of prime funds and into government money market funds. And this shift was also reflected in Europe.... LVNAV U.S. dollar money market funds, so our equivalent of the U.S. Prime fund ... and PDCNAV, our equivalent of the Government fund in the U.S. As you can see, redemptions from LVNAV funds were mirrored by inflows into PDCNAV funds. This money was not leaving the money market fund sector, it was just transitioning to another fund type. This option was less viable for Sterling and Euro investors as PDCNAV funds do not exist at scale except in U.S. dollars."

Next, Iommi comments, "You may be asking, well, 'What about the various asset purchase facilities? Did they not help European money market funds?' ... There's no doubt that unprecedented central bank interventions in the third week of March helped to stabilize the global financial markets.... Offshore U.S. dollar funds were not included, but they did indirectly benefit from the mediazation of stress levels. However, although European money market funds also benefited from the broad stabilization of market conditions, the various asset purchase facilities established in Europe brought money market funds no direct benefit. The facilities were primarily targeted at corporate paper, and money market funds -- because of quality and supply constraints -- have the majority of their assets in financial paper, which didn't qualify. As volatility dropped the pressure on margin calls, which had been a factor in redemptions, was also nascent, and this also helped funds."

She also asks, "How did money market funds fare overall in the Covid storm? As explained earlier, the money market fund regulation in Europe introduced a number of more prescriptive protective measures designed to make funds more robust. Of course, recent events have put these mechanisms to the test, and we're pleased to report that money market funds proved resilient. Despite the exceptional and adverse market conditions, IMMFA money market funds were able to meet redemptions in full and on time, and no gates or fees were imposed. In other words, they continued to serve that purpose of protecting capital and providing liquidity. Furthermore, once markets normalized, assets under management increased again, reflecting investor confidence in the underlying structure, including the dominant LVNAV category. Indeed, that liquidity, combined with transparency, is particularly appreciated in the current environment."

Iommi states, "So, what has overall been identified and what have we been doing over this challenging period? ... As a voice of the industry, we've been actively contributing to the post-crisis analysis. In July, we issued a detailed in proposition paper setting out our assessment of the impact of the Covid-19 pandemic on the European money market fund sector.... Subsequently, we've produced some preliminary IMMFA recommendations covering areas which we feel merit further examination, and these are still being developed further with our members.... And, all along we've been continuing to engage with regulatory and policy stakeholders at a European national and international level, together with, of course, continuing to coordinate with other relevant industry associations such as ICI Global, Irish Funds and EFAMA."

Finally, she adds, "To conclude, EU money market funds regulation has brought greater transparency and consistency for investors. Although money market funds were stressed in the recent crisis, they were not the source of market dysfunctionality. Increased assets under management illustrate their continued appeal and growth, notwithstanding the pandemic. We as an organization are continuing our engagement with policymakers and regulators not only as we approach the European Commission's five-year review of the money market fund regulation, but also in contributing to some key overarching themes from a regulatory policy perspective, including, of course, the dreaded B-word, Brexit. As we do so, we'll obviously be keeping our investors and other stakeholders informed of developments to our series of insights available on our website."

We're officially taking this year's Money Fund University virtual! Please join us for the 11th annual Crane's Money Fund University, which will take place Jan. 21-22, 2021, online. (We had been scheduled for Pittsburgh, but had to cancel due to coronavirus.) Money Fund University offers an affordable and comprehensive, day-and-a-half, "basic training" course on money market mutual funds. MFU covers the history of money funds, interest rates, regulations (Rule 2a-7), ratings, rankings, money market instruments such as commercial paper, CDs and repo, and portfolio construction and credit analysis. We also include segments on offshore money funds and ultra-short bond funds. New portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of "cash" investing will benefit from our comprehensive program. Even experienced professionals should enjoy this refresher course and the opportunity to interact with peers in an informal setting. Attendee registration is $250 and sponsorship opportunities are $1K, $2K, $3K and $5K. (Note: Thanks to those who attended and supported yesterday's European Money Fund Symposium Online. The recording is available for those who missed it, and see our initial coverage below and watch for more in coming days.)

Our virtual Money Fund University will kick off Thursday, January 21 at 1pm ET with live segments, including: "Welcome to Money Fund University, History & Current State of Money Funds" (1-1:45pm) featuring our Peter Crane; "The Federal Reserve & Money Markets" (1:45-2:30pm), with Bank of America Merrill Lynch's Olivia Lima; "Instruments of the Money Markets Intro" (2:45-3:30pm) with J.P. Morgan Asset Management's Teresa Ho; and, "Credit Analysis & Portfolio Management" (3:30-4:15pm), with JP Morgan AM's Robert Motroni.

Following the live sessions, three pre-recorded sessions will be available. These include: "Instruments: Treasuries & Government Agencies" featuring Federated Hermes' Sue Hill and TD Securities Matt Lachance; "Instruments: Commercial Paper & ABCP" featuring Citi's Jean-Luc Sinniger; and "Instruments: CDs, TDs & Bank Debt" featuring Wells Fargo Securities' Vanessa McMichael and Bank Hapoalim's Marian Trano.

Day 2 of our virtual Money Fund University will begin with, "Money Fund Regulations: 2a-7 Basics" (1-1:45pm) featuring Dechert's Stephen Cohen and Stradley Ronon's Jamie Gershkow; "Offshore Money Funds & Ultra-Shorts" (1:45-2:30pm), with Peter Crane, Sullivan and Worcester's John Hunt and Fidelity Investments' Kerry Pope; and "Money Fund Data & Wisdom Demo/Training" (2:45-3:15pm). The conference will wrap up with a brief graduation ceremony at 3:15pm.

Following the live sessions of Day 2, an additional three pre-recorded sessions will be available. These include: "Instruments: Repurchase Agreements" featuring J.P. Morgan Securities' Jake Kruk; "Instruments: Tax-Exempt Securities & VRDNs" featuring Fidelity Investments' John Vetter; and "Ratings, Monitoring & Performance" featuring Fitch Ratings' Greg Fayvilevich and S&P Global's Joseph Giarratano.

Also, please join us for our next free webinar, Crane's Money Fund Wisdom Demo & Training on Dec. 16 from 1-2:00pmET. This session will feature Peter Crane discussing money fund data and giving a product tutorial on our Money Fund Wisdom product "suite" and Money Fund Intelligence data. Finally, mark your calendars for our future events: Bond Fund Symposium, scheduled for March 25-26, 2021, in Newport Beach, Calif (or virtual); Money Fund Symposium, scheduled for June 23-25, 2021 in Philadelphia; and European Money Fund Symposium, scheduled for October 21-22, 2021 in Paris, France.

In related news, Crane Data hosted its most recent virtual event, European Money Fund Symposium Online yesterday. The event featured a morning of presentations and discussions on European and "offshore" money market mutual fund topics. Patrick Rooney of Irish Funds reviewed statistics of money funds domiciled in Ireland and discussed MMFs during the Covid-19 crisis in his session, "Money Funds in Ireland & European Regulations." We quote from this segment below. (Thanks again to our attendees, excellent speakers and sponsors! If you missed it, the recording is available here. Watch for more coverage in coming days.)

Rooney explains, "On sales and redemptions ... we can take a look at how Irish MMFs were impacted by the Covid crisis.... The first thing to really note ... is that large subscriptions and redemptions -- large movements in and out of money market funds -- are nothing new. This is part of the normal cycle, the flow in money market funds.... You can see that in January, for example, before the crisis hit. But that said, there was a clear spike in activity in March, associated with the onset of the Covid crisis. You can see a steep increase in redemptions, but also subscriptions over the entire month. And this is even over the entire month and across all money market fund products. It's interesting that the high level of subscriptions, nearly matches the high level of redemptions, giving us a net outflow of just 4.4 billion euro, which is less than one percent of assets. Of course, that's at an aggregate high-level picture."

He continues, "During the crisis there were two clear trends in terms of investor activity that have been identified. The first was redemptions in the so-called 'dash for cash,' where investors were looking to redeem to meet operational needs and corporates were building up their cash reserves. So that was very apparent. Then secondly, as I mentioned, we saw a big flow of investors moving into government funds in a time of uncertainty.... In order to see this more clearly, we need to delve a bit deeper."

Rooney adds, "[A] table is taken from the Central Bank of Ireland's recent publication on the effects of the pandemic on money market funds and money markets ... relates to the period of the 12th to the 23rd of March, which was the most intense period of outflows during the Covid crisis. This shows the outflows by various product categories as a percentage of their NAV at the end of February. The average outflows is 10 percent of NAV. The situation for the US dollar denomination LVNAV was different, where a higher outflow of 23 percent was recorded. And what's interesting, it's over the same period the public debt CNAV denominated in US dollars was seeing large inflows as investors moved their money in this currency, from LVNAV to government funds because of its safe haven status."

He goes on, "What's very interesting is you can see that when you combine the two flows, as the central bank has done on this chart, the US dollar LVNAV and the US dollar PDCNAV, the net outflows converge on the industry average of 10 percent. This was very much a move by investors within MMFs as opposed to away from MMFs, and I think explains the higher level of redemptions in the US denominated LVNAV. It's a pattern that we've seen before, so it's not unexpected."

Rooney also comments, "The onset of the crisis was swift as we know and created redemption pressures for MMFs, but it's important to note that all redemptions were met without exception. And it's important to note as well that Euro and GBP MMFs in Ireland continued to pick up assets during the crisis, as did the US dollar PDCNAV [public debt constant NAV].... So, investors were not at all dissuaded from using MMFs during this time, and rather the industry has come out of this crisis with more assets than it had going in."

BNY Mellon's Dreyfus money fund complex announced a series of changes to its product lineup, but most notably indicated that it's sticking with Prime funds in its offerings. A press release entitled, "Dreyfus Cash Investment Strategies to Optimize Money Market Fund Range" tells us, "Dreyfus Cash Investment Strategies (Dreyfus CIS), a BNY Mellon Investment Management firm with $254bn in assets under management, ... announced that it will be optimizing its suite of money market funds to meet the evolving needs of cash investors. The enhancements to Dreyfus CIS' money market fund range over the next several months will result in: A streamlined product offering of 19 funds across three fund families to provide investment choice across all major money market asset classes; A uniform pricing structure within each fund family to improve client navigation, as well as reduced management fees in four retail funds and one institutional fund; and, Broader investor eligibility through lower investment minimums in many fund share classes." (On a separate note: Crane Data will also be hosting its European Money Fund Symposium Online on Thursday, Nov. 19 from 10am-12pm Eastern, or 3-5pmGMT. Please join us!)

Stephanie Pierce, CEO of ETF, Index, and Cash Investment Strategies at BNY Mellon Investment Management comments, "For nearly 50 years, as markets and client needs have changed, Dreyfus CIS has met the cash management needs and preferences of investors.... As part of BNY Mellon, Dreyfus CIS offers clients deep investment expertise, resilient infrastructure, and a record of strong financial stewardship across the entire cash spectrum. Streamlining our money market fund range is part of our ongoing commitment to providing clients with the professional money management and competitive market returns they expect from us."

The release adds, "These actions build upon Dreyfus CIS' other recent enhancements, which include trading platform technology upgrades that are currently being rolled out to institutional and intermediary clients, the launch of a money market IMPACT strategy (Diversity & Inclusion), and updates to the investment guidelines on one government money market fund to help meet the needs of Federal Credit Unions. All fund changes have been approved by the respective Fund Boards and certain actions will require shareholder approval over the coming months."

The "Dreyfus CIS Proposed Fund Range" will include among its "Cash Management Family: Dreyfus Cash Management (Institutional Prime); Dreyfus Government Cash Management (Government Repo); Dreyfus Government Securities Cash Management (Government Repo); Dreyfus Treasury Obligations Cash Management (Treasury Repo); Dreyfus Treasury Securities Cash Management (Institutional Municipal); Dreyfus AMT-Free Municipal Cash Management Plus (Retail Municipal); and, Dreyfus AMT-Free New York Municipal Cash Management (Retail Municipal).

Dreyfus's updated "Preferred Family" will include: "Dreyfus Institutional Preferred Government Money Market (Government Repo); Dreyfus Institutional Preferred Government Plus Money Market Fund (Government Repo); Dreyfus Institutional Preferred Treasury Securities Money Market Fund (Treasury); and, Dreyfus Institutional Preferred Treasury Obligations (formerly Dreyfus Institutional Treasury Obligations Cash Advantage) (Treasury Repo).

The "Dreyfus Family & Specialty Funds" group includes: Dreyfus Money Market Fund, Inc. (Retail Prime); Dreyfus National Municipal Money Market (Retail Municipal); Dreyfus New York Municipal Money Market (Retail Municipal); Dreyfus Treasury and Agency Liquidity Money Market (Treasury Repo); BNY Mellon Variable Investment Fund Government Money Market Portfolio (Government Repo); Dreyfus Basic Money Market Fund, Inc. (Retail Prime); and Dreyfus Prime Money Market Fund (Retail Prime)."

Under "Fund Liquidations & Mergers," the "Mergers include: General Government Securities to merge into Dreyfus Government Cash Management (Government Repo); Dreyfus Institutional Treasury Securities Cash Advantage to merge into Dreyfus Institutional Preferred Treasury Securities Money Market Fund (Treasury); General Treasury Securities Money Market Fund to merge into Dreyfus Treasury Securities Cash Management (Treasury); Dreyfus Institutional Preferred Money Market to merge into Dreyfus Cash Management (Institutional Prime); and Dreyfus Liquid Assets to merge into Dreyfus General Money Market Fund, Inc. (Retail Prime). Finally, "Liquidations include: General Treasury and Agency Money Market Fund (Treasury Repo) and General California Municipal Money Market Fund (Retail Municipal).

Dreyfus is the 9th largest manager of money market funds with $194.7 billion, according to our latest Money Fund Intelligence XLS. For more Dreyfus news, see our article from one year ago, "Dreyfus Launches 'Impact' or Diversity Government Money Market Fund."

In other news, the U.S. Treasury's Office of Financial Research published its "2020 Annual Report yesterday, which "found that unexpected turbulence from the COVID-19 pandemic elevated risks across financial markets and revealed limitations in conventional market monitoring." They write, "To stabilize short-term funding markets, the Federal Reserve reestablished several credit facilities that were first used in the 2007-09 financial crisis. Some were set up under the Federal Reserve's emergency section 13(3) authority with the funding approval of the Treasury Secretary. Others were established by Title IV of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), with the funding approval of the Treasury Secretary. Although the facilities did not go into effect for days or weeks, market conditions began to improve with the initial announcements in mid-March that they would be available."

The report explains, "Under the Primary Dealer Credit Facility (PDCF), the Federal Reserve Bank of New York made collateralized loans to primary dealers, which are the banks and securities broker-dealers designated to serve as trading counterparties in carrying out U.S. monetary policy. The Money Market Mutual Fund Liquidity Facility (MMLF) allowed the Federal Reserve Bank of Boston to provide loans to eligible financial institutions to purchase assets from certain types of money market funds. The Commercial Paper Funding Facility (CPFF) financed commercial paper issuance. Primary dealers serve as intermediaries for issuance requests."

The OFR tells us, "Banks mostly avoided funding and liquidity problems this year. One reason is that large banks maintain liquidity buffers that generally exceed regulatory requirements calibrated to withstand up to 30 days of financial stress. Deposits, which are relatively more stable than wholesale funding, also flowed into banks. In contrast, some nonbank financial entities experienced temporary challenges managing liquidity. For example, some prime money market funds experienced unusually high customer redemptions. Under ordinary circumstances, money market funds experiencing significant liquidity demands would have met those demands by drawing on cash and cash equivalents, income earned on investments, and temporary lines of credit, or by selling securities with embedded gains or that are trading close to their par value. However, before the Federal Reserve's Money Market Mutual Fund Liquidity Facility (MMLF) was initiated, some prime institutional money market funds turned to their sponsors for liquidity support. The MMLF provided loans to banks to finance purchases of eligible assets from prime and municipal funds. Once the MMLF was established, several money market funds sold securities to affiliated and unaffiliated financial institutions via the facility to raise liquidity to meet redemptions while also maintaining weekly liquidity ratios above the regulatory minimum of 30 percent."

They also say, "Liquidity crises tend to get worse when investors anticipate potential net asset value declines or redemption gates, and increase their redemptions accordingly. As a result, the MMLF played an important role in helping money market funds maintain high asset liquidity essential for meeting redemption demands. But, as discussed later in this section, the liquidity problem for money market funds spilled over into funding problems for commercial paper issuers because money market funds are one of the largest classes of investors in these assets."

Finally, OFR's report comments, "Liquidity fell and rates spiked in other short-term funding markets, too. Prime money market funds sought to reduce their commercial paper holdings and raise cash to meet investor redemptions. Also, securities lending cash collateral reinvestment accounts reduced commercial paper holdings by nearly 30 percent in first quarter 2020. At the same time, commercial paper issuers, particularly nonfinancial companies with few alternative sources of short-term funding, experienced greater short-term funding needs under the stress of the pandemic. The Federal Reserve's Commercial Paper Funding Facility allowed issuers to buy back their outstanding commercial paper and reissue it. This facility reduced funding stress for most issuers. However, the facility does not address funding pressures of lower-credit-quality commercial paper issuers or support secondary market liquidity. Conditions in short-term funding markets gradually improved."

It adds, "The market's problems in March were very different from those experienced during the 2007-09 crisis, when asset-backed commercial paper was issued to fund risky residential mortgage-backed securities. Disruptions experienced in 2020 affect all types of investment-grade firms dependent on commercial paper for their short-term funding needs, both financial and nonfinancial."

The Financial Stability Board, "an international body that monitors and makes recommendations about the global financial system," published a "Holistic Review of the March Market Turmoil," which discusses issues involving money funds and short-term funding and "highlights the need for action to address vulnerabilities from non-bank financial intermediation." The report tells us, "The breadth and dynamics of the economic shock and related liquidity stress in March were unprecedented. As in previous cases, the shock caused a fundamental repricing of risk and a heightened demand for safe assets. However, the stress also led to large and persistent imbalances in the demand for, and supply of, liquidity needed to support intermediation. On the demand side, non-financial corporates attempted to tap capital markets; demand for US dollar liquidity increased from foreign borrowers; non-government money market funds (MMFs) experienced significant outflows; and some open-ended funds also experienced redemptions. On the supply side, reductions in risk appetite, regulatory constraints and operational challenges may have reduced dealers’ capacity to intermediate larger flows in some core funding markets."

The FSB says an update on "Money market fund (MMF) resilience" with the goal "To make policy proposals, in light of the March experience, to enhance MMF resilience including with respect to the underlying short-term funding markets," will be included in a report to the G20 in 2021. It explains, "First, there was an extremely high demand for cash and near-cash assets. This ‘dash for cash’ was underpinned by precautionary demand for liquidity in the real economy. Corporates’ and households’ concerns about the loss of a substantial part of their revenues, investor fears about the outlook for the global economy, and cash needs by financial institutions, resulted in the broad-based selling of financial assets -- even the safest and most liquid ones. In the financial system, redemptions from investment funds, margin calls resulting from increased volatility and the need of some non-banks to unwind leveraged positions may all have contributed to sudden spikes in the demand for cash (the mechanisms are discussed in detail in section 4)."

The FSB writes, "The commercial paper (CP) and certificate of deposit (CD) segments of money markets started to exhibit signs of severe stress, with outflows from non-government MMFs in the US and EU leading to selling pressures on the assets held by these funds. Equity and bond funds in emerging market economies (EMEs) as well as advanced ones experienced very large outflows as investors liquidated their positions. The selling also started to affect assets that would normally be seen as safe havens, such as US Treasuries and other advanced economy government bonds. At the same time, government MMFs experienced considerable inflows."

They continue, "Financial and non-financial corporate issuers were also unable to issue more commercial paper due to a shortage of demand, including by MMFs. CP and CD markets shut down for a number of days. The resulting tightening of financing conditions pushed corporates towards selling their investments and further drawing down their existing bank credit lines and revolving credit facilities. This large-scale draw down, taking place partly on a precautionary basis, put pressure on the balance sheets of the providers of those facilities."

The review comments, "Increased demand for less risky and more liquid assets, including those with a shorter maturity, manifested in the selling of certain assets and shifts in the portfolios of some MMFs. While the impact of the COVID-shock differed among jurisdictions (see Box 4.1) two distinct patterns were observed in European and US MMFs: There was a surge in redemptions from non-government (prime and tax-exempt) MMFs, i.e. those that invest in short-term CP and CDs. Outflows from US prime MMFs by the end of March amounted to US$125 billion (roughly 11% of AUM), with the majority of these redemptions in funds that were publicly offered to institutional investors. This contributed to the effective closure of the market for short-term funding and a sharp increase in demand for short-term government debt. There was a surge in inflows into government MMFs that invest in short-term government securities. Government MMFs, which invest in cash-like short-term debt, saw record inflows in excess of US$800 billion in March, roughly 30% of their assets under management. These inflows were partly attributable to a reallocation from prime MMFs and other short-term funding market investors, but also driven by disinvestments from other less-liquid asset classes in order to meet demand for cash (see below). Corporates and households also increased their deposits at banks (deposits at US banks increased by around US$476 billion over the course of March)." (See the sidebar on MMFs on page 19 too.)

Discussing the "Propagation through short-term funding markets," it states, "Stress was propagated through the interaction of investors in CP markets.... Amid increased risk aversion and desire for liquidity, investors became less willing to advance funds in the short-term unsecured market and fund CP with a maturity greater than a few days. Significant redemptions from non-government MMFs, which threatened to deplete the funds’ holdings of liquid assets, may have exacerbated strains in the short-term funding market. In the EU, some funds that held a significant portion of CP and other short-term debt adjusted their portfolios by selling less-liquid and riskier assets such as term CP and CD, and shortening the maturity of their unsecured debt. Some funds also attempted to raise funds by requesting issuing banks buy back their CP. Some banks accommodated these requests, others discouraged them with aggressive pricing. A few requests were, in the absence of contractual obligations, denied."

The FSB says, "Dealers also faced difficulties absorbing large sales of assets, amplifying turmoil in short-term funding markets. Dealers’ intermediation capacity was limited with the holdings of large amounts of other securities contributing to constrained balance sheets. Banks became less willing or able to supply hedging services and faced increased credit drawdowns by corporates, while prime MMFs that traditionally supply dollar funding faced redemptions and were forced to sell assets. Some intermediaries’ balance sheets may have been particularly inflexible given the looming March quarter-end. This pullback in the supply of dollars resulted in a sharp increase in funding costs. As a result, activity in CP and CD markets decreased markedly, primary issuance decreased sharply and issuers (both corporate and financial) struggled to roll over funding."

They continue, "The cost of funding for financial institutions increased, contributing to tighter funding conditions. Short-term funding cost surged as measured by, for example, interest rates on CP, CD and unsecured interbank lending. Bank funding conditions tightened not only because banks received less funding from MMFs, but also because corporate borrowers who were no longer able to obtain short-term funding via MMFs drew down their credit lines with banks, thereby crowding out other forms of bank lending."

The report adds, "Tighter dollar funding conditions affected entities that borrow in US dollars worldwide. Nongovernment MMFs are important holders of US dollar CP issued by non-US banks and non-financial corporates. Amid outflows from these funds, stresses intensified in the US dollar funding markets -- particularly in the case of banks headquartered outside the US. Portfolio outflows from US dollar-denominated bonds issued by EME borrowers were significant. At the same time demand for funding (including US dollars) increased amid lower revenues (especially for commodity exporters) and fiscal expansion. These factors contributed to an increase in the US dollar bond yields for EME borrowers -- increasing the repayment cost for those without natural hedges. Funding conditions tightened as a result of rising domestic interest rates and depreciating exchange rates."

The FSB's review also states, "Amid increased demand for cash and shorter-maturity assets, investors sold large volumes of longer-dated Treasuries in favour of shorter-dated assets. There were large, though orderly, inflows in to Treasuries up to early March -- with yields falling to record lows for all maturities. Government MMFs, investing in Treasury bills received significant inflows, pushing the short maturity T-bill rates to zero. However, during the dash for cash there were also strong selling pressures in Treasury bonds with longer maturity, and those yields increased temporarily but sharply, especially in less liquid off-the-run Treasuries."

Finally, under "Policy implications and areas of further work," the paper says, "First, the review of specific risk factors and markets would encompass the areas identified in this report as contributing to the amplification of the shock in March. These include examining: 1) liquidity risks, core functions and aspects of the structure or regulations in nongovernment MMFs which experienced large outflows and contributed to the stress in short-term funding markets; and, 2) whether and how other types of open-ended funds invested in illiquid assets could amplify liquidity stress, recognising the variety of fund structures (including interactions between mutual funds and ETFs), underlying assets (including their role in facilitating investment for the real economy) and the availability and use of liquidity management tools across different jurisdictions."

New Investment Company Institute President & CEO Eric Pan, comments, "The market turmoil of March was first and foremost a health crisis, triggered by COVID-19, that quickly escalated into a global economic shutdown prompting market volatility that struck every sector of the financial system. We welcome the Financial Stability Board's holistic review of the March market turmoil and its description of those events as 'unprecedented.' As noted by the FSB, liquidity stress was the product of both demand- and supply-side events, ranging from increased demand by nonfinancial corporations on the capital markets, including funds, to the regulatory constraints and operational challenges that affected the role of dealers, as well as the substantial sale of US Treasuries."

He adds, "We appreciate that the FSB will coordinate an assessment by the international regulatory community to consider possible policy options. We encourage international regulators to continue to take an empirical, data-based approach; to draw careful distinctions among market participants and products; and to look carefully at market structure and the interactions between banks and other market participants. To this end, ICI looks forward to sharing with the FSB its extensive research and expertise regarding regulated funds." See also, Reuters' "Regulators target money market funds after COVID-19 turmoil".

Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds moved lower again over the past month. They broke above the $1.0 trillion for the first time ever three months ago, hitting a record $1.056 trillion in August. These U.S.-style funds, domiciled in Ireland or Luxemburg and denominated in US Dollars, Pound Sterling and Euros, have decreased by $27.5 billion over the last 30 days (when translated into dollars), but they're up by $133.2 billion (15.2%) year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January, are down $24.2 billion over the last 30 days but up $28.0 billion YTD to $522.4 billion. Euro funds are down E3.6 billion over the past month, and YTD they're up E38.6 billion to E137.3 billion. GBP money funds have risen by L721 million over 30 days, and are up by L22.1billion YTD to L247.0B. U.S. Dollar (USD) money funds (192) account for over half (51.7%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 15.1% and Pound Sterling (GBP) funds (120) total 29.7%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Monday), below. (Note: For more on European and offshore money funds, register for our European Money Fund Symposium Online, which takes place Thursday, Nov. 19 from 10am-12pm Eastern, or 3-5pmGMT.)

Offshore USD MMFs yield 0.05% (7-Day) on average (as of 11/13/20), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.63% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.02%, down from 0.64% as of 12/31/19 and 0.64% at the end of 2018. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)

Crane's November MFII Portfolio Holdings, with data as of 10/31/20, show that European-domiciled US Dollar MMFs, on average, consist of 21.8% in Commercial Paper (CP), 14.9% in Certificates of Deposit (CDs), 16.6% in Repo, 34.5% in Treasury securities, 11.0% in Other securities (primarily Time Deposits) and 1.2% in Government Agency securities. USD funds have on average 33.3% of their portfolios maturing Overnight, 8.2% maturing in 2-7 Days, 13.4% maturing in 8-30 Days, 11.8% maturing in 31-60 Days, 11.6% maturing in 61-90 Days, 18.0% maturing in 91-180 Days and 3.8% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (44.2%), France (12.4%), Japan (8.1%), Canada (5.8%), Germany (4.7%), the Netherlands (4.4%), Sweden (4.3%), the U.K. (3.7%), Switzerland (2.1%), Australia (2.0%), Belgium (1.8%), Norway (1.8%), Singapore (1.0%) and Abu Dhabi (1.0%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $193.0 billion (34.5% of total assets), BNP Paribas with $20.3B (3.6%), Fixed Income Clearing Corp with $18.3B (3.3%), Mizuho Corporate Bank Ltd with $13.4B (2.4%), Mitsubishi UFJ Financial Group Inc with $11.7B (2.1%), Barclays PLC with $11.5B (2.1%), Credit Agricole with $11.4B (2.0%), JP Morgan with $10.5B (1.9%), Sumitomo Mitsui Banking Corp with $9.6B (1.7%) and Societe Generale with $9.3B (1.7%).

Euro MMFs tracked by Crane Data contain, on average 43.0% in CP, 14.8% in CDs, 22.6% in Other (primarily Time Deposits), 15.2% in Repo, 3.6% in Treasuries and 0.7% in Agency securities. EUR funds have on average 33.9% of their portfolios maturing Overnight, 8.1% maturing in 2-7 Days, 13.8% maturing in 8-30 Days, 10.4% maturing in 31-60 Days, 15.2% maturing in 61-90 Days, 12.7% maturing in 91-180 Days and 5.8% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (33.3%), the U.S. (10.5%), Japan (9.9%), Germany (9.8%), Sweden (4.5%), the U.K. (4.4%), the Netherlands (4.2%), Switzerland (3.6%), Canada (3.5%), Belgium (3.3%), Austria (2.4%), China (1.6%) and Italy (1.5%).

The 10 Largest Issuers to "offshore" EUR money funds include: BNP Paribas with E7.7B (6.0%), Credit Agricole with E7.3B (5.6%), BPCE SA with E6.2B (4.8%), Citi with E4.7B (3.6%), Societe Generale with E4.6B (3.6%), Sumitomo Mitsui Banking Corp with E3.7B (2.9%), Republic of France with E3.7B (2.9%), Zurich Cantonal Bank with E3.7B (2.8%), DZ Bank AG with E3.6B (2.8%) and Mizuho Corporate Bank Ltd with E3.6B (2.8%).

The GBP funds tracked by MFI International contain, on average (as of 10/31/20): 33.1% in CDs, 19.9% in CP, 21.9% in Other (Time Deposits), 21.5% in Repo, 3.1% in Treasury and 0.4% in Agency. Sterling funds have on average 37.2% of their portfolios maturing Overnight, 9.7% maturing in 2-7 Days, 11.7% maturing in 8-30 Days, 7.8% maturing in 31-60 Days, 12.0% maturing in 61-90 Days, 17.3% maturing in 91-180 Days and 4.4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (21.5%), the U.K. (19.3%), Japan (16.5%), Canada (8.4%), the U.S. (5.3%), Sweden (5.2%), Germany (4.3%), the Netherlands (4.0%), Abu Dhabi (2.3%), Spain (2.3%) and Australia (2.2%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L19.6B (9.4%), BNP Paribas with L12.1B (6.3%), Mizuho Corporate Bank Ltd with L11.3B (5.4%), Mitsubishi UFJ Financial Group Inc with L8.8B (4.2%), BPCE SA with L7.9B (3.8%), Agence Central de Organismes de Securite Sociale with L7.8B (3.7%), Sumitomo Mitsui Banking Corp with L7.7B (3.7%), Credit Agricole with L7.6B (3.6%), Nordea Bank with L7.4B (3.5%) and Barlcays PLC with L7.1B (3.4%).

In other news, ICI released its latest monthly "Money Market Fund Holdings" summary yesterday, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. (For more, see our November 12 News, "November MF Portfolio Holdings: Repo, Agencies, Treas Plunge; TDs Up.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in October, prime money market funds held 37.9 percent of their portfolios in daily liquid assets and 50.9 percent in weekly liquid assets, while government money market funds held 74.4 percent of their portfolios in daily liquid assets and 84.4 percent in weekly liquid assets." Prime DLA was unchanged from 37.9% in September, and Prime WLA increased from 49.9%. Govt MMFs' DLA increased from 74.1% in September and Govt WLA increased from 84.1% from the previous month.

ICI explains, "At the end of October, prime funds had a weighted average maturity (WAM) of 48 days and a weighted average life (WAL) of 62 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 45 days and a WAL of 101 days." Prime WAMs were up two days from the previous month, WALs also up two days from the previous month. Govt WAMs and WALs were unchanged from September.

Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $290.65 billion in September to $277.24 billion in October. Government money market funds' holdings attributable to the Americas declined from $3,320.00 billion in September to $3,209.56 billion in October." The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $277.2 billion, or 46.9%; Asia and Pacific at $91.5 billion, or 15.5%; Europe at $216.7 billion, or 36.6%; and, Other (including Supranational) at $6.1 billion, or 1.0%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.210 trillion, or 87.6%; Asia and Pacific at $109.3 billion, or 3.0%; Europe at $326.3 billion, 8.9%, and Other (Including Supranational) at $18.5 billion, or 0.5%."

The November issue of our Bond Fund Intelligence, which was sent to subscribers Monday morning, features the lead story, "ICI Covid-19 Report Says Fixed-Income ETFs Proved Resilience," which highlights a recent look at this year's March Madness, and "BlackRock's Novick at SEC Roundtable; SEC Study," which quotes from a recent look at events surrounding the coronavirus shutdown in the spring. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields and returns were flat to lower in October. 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.)

Our Covid-19 Report piece reads, "The Investment Company Institute published a 'Report of the Covid-19 Market Impact Working Group: Experiences of US Exchange-Traded Funds During the COVID -19 Crisis' recently, which tells us, 'Despite unprecedented market volatility in March 2020 caused by the COVID-19 crisis, the ETF ecosystem -- generally thought of as ETF issuers, APs, and ETF liquidity providers -- proved its resilience. ETF shares traded smoothly and efficiently on the stock exchanges, with dealers ... continuing to make two-sided markets in ETF shares. In addition, ETFs acted as a price discovery tool for investors. This was particularly true in the fixed-income market, where market participants faced challenges in finding liquidity and establishing pricing for individual bonds.'"

It explains, "Investment grade bond ETFs accounted for the bulk of net outflows from bond ETFs in March 2020.... This naturally raises the question of whether selling pressure on investment grade bond ETFs was greater than on investment grade bonds. Looking at the average bid-ask spread for the five largest investment grade bond ETFs, this does not appear to have been the case."

ICI's report continues, "Bid-ask spreads on high-yield bond ETFs normally are substantially narrower than those on high-yield bonds. This difference largely reflects the lower liquidity of the high-yield bond market where, even in normal times, individual bonds may lack liquidity for days. During the crisis in March 2020, while the average spreads on the five largest high-yield bond ETFs increased in dollar terms, they rose far less than those on high-yield bonds."

Our latest Roundtable article explains, "Last month, the SEC hosted a 'Roundtable on Interconnectedness and Risk in U.S. Credit Markets,' which followed the publication of its study, 'U.S. Credit Markets: Interconnectedness and the Effects of the COVID-19 Economic Shock,' a report that examined the chaos in financial markets that accompanied the mid-March sudden shutdown of the world economy. We review some of the discussion from the roundtable and quote from the study below."

During one session, BlackRock's Barbara Novick tells us, 'Starting with bond funds, the first word that comes to mind is heterogeneous. They're all talked about as if there's one big bond fund. But in fact there are many different strategies -- active, index, short duration, long duration, different credit, etc., and fund managers apply a range of liquidity risk management tools based on the type of fund.'"

She explains, "So, for example, if you have a fund with a lot of mortgage backed securities, you're going to get in a lot of cash every month from principal and interest payments. On the other hand, if you have a high yield fund that is a sector specific fund, you might deliberately hold cash or other liquid assets, or you might hold larger issues that are more liquid and basically build in what we call layers of liquidity."

Our Bond Fund News includes the brief, "Yields, Returns Inch Lower in October." It says, "Bond fund yields were flat to lower and returns were mostly lower last month. Our BFI Total Index returned -0.10% over 1-month and 3.50% over 12 months. The BFI 100 fell 0.17% in Oct. but rose 4.38% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.04% over 1-mo and 1.56% over 1-yr; Ultra-Shorts averaged 0.08% in Oct. and 1.66% over 12 mos. Short-Term returned 0.09% and 3.10%, and Intm-Term fell 0.30% last month and 5.50% over 1-year. BFI's Long-Term Index fell by 0.59% in Oct. but rose 7.04% for 1-year. Our High Yield Index rose 0.26% last month and is up just 1.67% over 1-year."

In another News brief, we quote Morningstar's, piece, "What's Behind the Strong Performance of Big Funds?" They explain, "Today, the biggest bond fund is a huge success. Pimco Income (PONAX) under Dan Ivascyn produced top 2% returns in its Morningstar Category over the 10 years ended in July 2020. Yet the largest actively managed equity fund, American Funds Growth Fund of America (AGTHX), is slightly behind the median large-growth fund over the trailing three-, five-, and 10-year periods."

In a third News update, Barron's examines, "How Bonds Could Fare Under Biden, According to Two Pros." They explain, "The bond investors at Milwaukee-based Baird Advisors have an enviable record of steady performance over the years. Three funds in particular -- Baird Core Plus (BCOIX), Baird Aggregate Bond (BAGIX), and Baird Short-Term Bond (BSBIX)—are routinely praised by Morningstar. Mary Ellen Stanek, who runs Baird and serves as its CIO, has twice been nominated for ... awards."

BFI also features the sidebar, "Fink on Record ETF Flows," which tells us, "BlackRock's Laurence Fink commented during the company's latest quarterly (Q3) earnings call, 'We saw record momentum around fixed income ETFs, which continue to attract new users. iShares fixed income ETFs generated $20 billion in net inflows in the third quarter, and we have captured nearly 40% of industry flows year-to-date. As we've said before, fixed income ETFs are one of the fastest growing categories in asset management. It crossed $1 trillion in assets last summer [sic] and [is] now over $1.4 trillion, and we think it can be a multi-trillion dollar market in the years ahead.'"

Finally, a piece entitled, "Bond ETFs Poised at $1 Tril.," explains, "Bond funds continued to see strong inflows in October, but then saw a rare outflow in early November. ICI's 'Combined Estimated Long-Term Fund Flows and ETF Net Issuance,' says, 'Bond funds had estimated outflows of $3.35 billion for the week, compared to estimated inflows of $8.53 billion during the previous week [and $15.6 billion the prior week]. Taxable bond funds saw estimated outflows of $3.10 billion, and municipal bond funds had estimated outflows of $243 million.' Over the past 5 weeks, bond funds and bond ETFs have seen inflows of $66.6 billion."

The Securities & Exchange Commission published, "Primer: Money Market Funds and the Commercial Paper Market," earlier this week, which reviews commercial paper, money market funds and the events of March 2020. Authored by Viktoria Baklanova, Isaac Kuznits and Trevor Tatum, the paper explains, "Commercial paper (CP) is unsecured, short-term debt issued for a specified amount to be paid at a specified date. CPs are issued at a discount, with minimum denominations of $100,000 and terms normally ranging from 1 to 270 days. Total U.S. CP outstanding was at $1,007 billion at the end of June 2020, down by $37 billion since the end of 2019.... This is around one half of $2.2 trillion, the all-time high in CP outstanding reached in July 2007."

It tells us, "The majority of the decline in CP outstanding since the financial crisis can be attributed to reduction in the asset-backed commercial paper (ABCP) issuance. As of June 2020, ABCP outstanding were at $214 billion accounting for 21% of the total CP outstanding.... CP issued by U.S. financial firms were at $189 billion (or 19% of the total); CP issued by nonfinancial firms were at $166 billion (or 17% of the total); and non-U.S. financial and other firms were at $438 billion (or 43% of the total)."

The piece continues, "Many types of institutional investors participate in the CP market, including investment companies, retirement accounts, state and local governments, financial and nonfinancial firms. As of June 2020, nonfinancial firms were the largest investors accounting for 25% of the total CP market followed by money market funds (MMFs) at 22%.... Investments by financial firms were at 19% of the total. Other large CP investors are mutual funds (ex-MMFs) at 10%, state and local governments at 7% and pension accounts at 5%. The 'Others' category includes smaller CP investors that collectively account for around 13% of the total CP outstanding."

It states, "The investor base in the CP market has changed over time. For example, MMFs used to account for a substantially larger share of the CP market at close to 47% in September 2001. Over the last 20 years, MMF participation in the CP market has declined markedly. One reason for the decline is that assets under management in government MMFs, which do not invest in the CP market, have grown.... Assets in prime MMFs have declined resulting in lower demand for CP from MMFs. On the other hand, CP investments of nonfinancial corporations have increased almost six-fold since 2000 to $250 billion in June 2020 (or 25% of the total CP market) from $46 billion in March 2000 (or 3% of the total CP market)."

On the market freeze, the authors explain, "In mid-March 2020, CP rates increased, which is normally associated with a lack of investor demand.... However, the broad scope of market developments at the onset of the COVID-19 pandemic complicates the attribution analysis. Corporate investors in the CP market may have reduced their allocations in anticipation of reduction in revenues. MMFs and mutual funds may have decreased their CP investments in anticipation of investor redemptions. Available data show that prime MMFs and short-term and ultra-short corporate bond mutual funds experienced significant outflows in March.... Prime MMFs lost around 11% of their net assets in March. Similarly, short-term and ultra-short bond mutual funds lost around 10% of their assets."

They add, "At the same time, some CP issuers may have turned to the CP market to bridge their funding needs. Overall, the CP outstanding increased in the first quarter of 2020 by $44 billion, despite the spike in the CP rates. During the second quarter, CP issuers had fewer immediate borrowing needs amidst reduced economic activity and the CP outstanding declined by $82 billion."

The paper comments, "The Federal Reserve established the Money Market Mutual Fund Liquidity Facility (MMLF) on March 18, 2020, to broaden its program of support for the flow of credit to households and businesses. MMLF makes loans available to banks to finance assets purchased from prime and tax-exempt MMFs. MMLF started its operations on March 23 and initially intended to provide loans for purchases of CPs, but was extended to included purchases of certificates of deposit (CDs) and certain municipal securities. MMLF also enabled banks that purchased assets from affiliated MMFs to finance these purchases with loans from MMLF. In addition, since March, financial regulatory agencies have announced multiple emergency relief provisions for banks, advisers and funds. Following these actions, both market conditions and broader economic conditions in the U.S. appeared to improve."

Lastly, the authors tell us, "The outstanding amount of MMLF loans has been declining since April. The maximum MMLF utilization reached $51 billion in the first two weeks of April, or under 5% of the net assets in eligible MMFs. For context, lending by a similar Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (AMLF) utilized in September 2008 reached about $150 billion in its first 10 days of operation, or around 7.5% of assets in prime MMFs at that time. As of September 30, 2020, the total amount of outstanding MMLF loans was around $7 billion; MMLF accrued revenues from interest and fees to the Federal Reserve were around $166 million. Initially MMLF was scheduled to stop providing new loans after September 30, 2020, but was recently extended by three months through December 31, 2020."

In related news, Bloomberg published the article, "Money-Fund Rules in Crosshairs Again As Boston Fed Takes Aim." They write, "The drumbeat for change to rules surrounding money-market mutual funds may be growing, with U.S. central bank official Eric Rosengren on Tuesday once again taking aim on the subject."

It explains, "Money funds 'failed again' during the coronavirus-related market upheaval that took place earlier in the year, and there needs to be a focus on reforming the rules that govern them, the Federal Reserve Bank of Boston president said Tuesday. He said it was prime funds -- those which are able to invest in non-government-backed instruments -- 'that were the problem' and that the situation surrounding money funds is 'quite disturbing.'"

Bloomberg's piece continues, "U.S. money-market funds -- which provide a lot of the cash that companies and governments borrow on a short-term basis -- underwent a major regulatory overhaul in 2016 to prevent a repeat of a damaging run on these funds that took place during the 2008 meltdown. But a coronavirus-related exodus of cash earlier this year from prime funds showed that this risk remains. That has some, including Rosengren, suggesting that further tweaks may be warranted."

They write, "The Fed official went further during an online event hosted by the Harvard Kennedy School on Tuesday, saying his 'personal preference would be not to have prime money funds' for either individual or institutional investors. Rosengren has been at the center of bailing out money markets since 2008 when the Boston Fed launched the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, or AMLF, in the wake of the crisis that rocked the global economy that year. In March this year, the Boston Fed also spearheaded the Money Market Mutual Fund Liquidity Facility, or MMLF, a facility that offered a backstop for prime funds."

Finally, the article tells us, "Rosengren said the presidents of the regional Federal Reserve banks did not get the outcome they were hoping for in the wake of the 2008 crisis and that some of the measures put in place by the Securities and Exchange Commission actually encouraged investors to pull funds out more quickly. The actions taken made matters 'worse, not better,' he said. 'We need to really refocus on what assets are appropriate to have immediately accessible for individuals and really think about the regulatory construct a little more carefully this time.'"

Crane Data released its November Money Fund Portfolio Holdings Tuesday, and our most recent collection, with data as of October 31, 2020, shows a decrease in every category except Other (Time Deposits) and VRDNs last month. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) decreased by $148.0 billion to $4.624 trillion last month, after decreasing $94.3 billion in September, $12.7 billion in August, $83.1 billion in July and $159.1 billion in June. Money market securities increased $31.6 billion in May, and a staggering $529.4 billion in April and $725.6 billion in March. Treasury securities remained the largest portfolio segment, followed by Repo, 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, `Treasury securities decreased by $39.8 billion (-1.6%) to $2.422 trillion, or 52.4% of holdings, after decreasing $6.3 billion in September, increasing $3.1 billion in August and decreasing $79.9 billion in July. Repurchase Agreements (repo) decreased by $58.4 billion (-5.6%) to $982.3 billion, or 21.2% of holdings, after decreasing $6.7 billion in September, increasing $60.8 billion in August and increasing $40.0 billion in July. Government Agency Debt decreased by $50.5 billion (-6.6%) to $717.9 billion, or 15.5% of holdings, after decreasing $28.1 billion in September, $37.6 billion in August and $45.1 billion in July. Repo, Treasuries and Agencies totaled $4.122 trillion, representing a massive 89.1% of all taxable holdings.

Money funds' holdings of CP and CDs fell in October, while Other (mainly Time Deposits) and VDRNs saw assets increase. Commercial Paper (CP) decreased $9.7 billion (-4.2%) to $222.2 billion, or 4.8% of holdings, after decreasing $11.6 billion in September, $32.5 billion in August and $10.7 billion in July. Certificates of Deposit (CDs) fell by $8.4 billion (-5.4%) to $147.7 billion, or 3.2% of taxable assets, after decreasing $20.8 billion in September, $19.0 billion in August and $12.3 billion in July. Other holdings, primarily Time Deposits, increased $18.4 billion (19.5%) to $113.0 billion, or 2.4% of holdings, after decreasing $21.0 billion in September, increasing $15.3 billion in August and $22.3 billion in July. VRDNs increased to $19.8 billion, or 0.4% of assets. (Note: This total is VRDNs for taxable funds only. We will publish Tax Exempt MMF holdings separately late Thursday.)

Prime money fund assets tracked by Crane Data dropped $39.0 billion to $948.0 billion, or 20.5% of taxable money funds' $4.624 trillion total. Among Prime money funds, CDs represent 15.6% (down from 15.8% a month ago), while Commercial Paper accounted for 23.4% (down from 23.5%). The CP totals are comprised of: Financial Company CP, which makes up 14.7% of total holdings, Asset-Backed CP, which accounts for 5.0%, and Non-Financial Company CP, which makes up 3.7%. Prime funds also hold 6.1% in US Govt Agency Debt, 28.1% in US Treasury Debt, 4.0% in US Treasury Repo, 0.6% in Other Instruments, 7.1% in Non-Negotiable Time Deposits, 5.3% in Other Repo, 5.2% in US Government Agency Repo and 1.1% in VRDNs.

Government money fund portfolios totaled $2.532 trillion (54.8% of all MMF assets), down $84.0 billion from $2.616 trillion in September, while Treasury money fund assets totaled another $1.145 trillion (24.8%), down from $1.170 trillion the prior month. Government money fund portfolios were made up of 26.1% US Govt Agency Debt, 13.1% US Government Agency Repo, 48.7% US Treasury debt, 11.5% in US Treasury Repo, 0.2% in VRDNs, 0.3% in Other Instruments and 0.1% in Investment Company . Treasury money funds were comprised of 83.9% US Treasury Debt and 16.0% in US Treasury Repo. Government and Treasury funds combined now total $3.677 trillion, or 79.6% of all taxable money fund assets.

European-affiliated holdings (including repo) increased by $4.2 billion in October to $630.6 billion; their share of holdings rose to 13.6% from last month's 13.1%. Eurozone-affiliated holdings rose to $449.7 billion from last month's $430.0 billion; they account for 9.7% of overall taxable money fund holdings. Asia & Pacific related holdings decreased $5.1 billion to $221.9 billion (4.8% of the total). Americas related holdings fell $147.0 billion to $3.768 trillion and now represent 81.5% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $71.8 billion, or -11.5%, to $551.6 billion, or 11.9% of assets); US Government Agency Repurchase Agreements (up $11.4 billion, or 3.1%, to $380.7 billion, or 8.2% of total holdings), and Other Repurchase Agreements (up $2.0 billion, or 4.2%, from last month to $50.0 billion, or 1.1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (down $2.0 billion to $139.4 billion, or 3.0% of assets), Asset Backed Commercial Paper (down $4.5 billion to $47.8 billion, or 1.0%), and Non-Financial Company Commercial Paper (down $3.2 billion to $35.0 billion, or 0.8%).

The 20 largest Issuers to taxable money market funds as of Oct. 31, 2020, include: the US Treasury ($2,421.2 billion, or 52.4%), Federal Home Loan Bank ($430.8B, 9.3%), BNP Paribas ($137.9B, 3.0%), Federal National Mortgage Association ($102.6B, 2.2%), Federal Farm Credit Bank ($98.7B, 2.1%), Fixed Income Clearing Co ($97.0B, 2.1%), RBC ($91.1B, 2.0%), JP Morgan ($86.5B, 1.9%), Federal Home Loan Mortgage Co ($73.9B, 1.6%), Credit Agricole ($62.4B, 1.4%), Mitsubishi UFJ Financial Group Inc ($60.2B, 1.3%), Barclays ($60.2B, 1.3%), Citi ($56.7B, 1.2%), Societe Generale ($50.7B, 1.1%), Sumitomo Mitsui Banking Co ($47.1B, 1.0%), Bank of America ($46.4B, 1.0%), Toronto-Dominion Bank ($35.5B, 0.8%), Bank of Montreal ($34.2B, 0.7%), Canadian Imperial Bank of Commerce ($28.1B, 0.6%) and Mizuho Corporate Bank Ltd ($27.9B, 0.6%).

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 ($106.3B, 11.3%), Fixed Income Clearing Corp ($94.3B, 10.0%), JP Morgan ($74.2B, 7.9%), RBC ($72.9B, 7.7%), Citi ($47.6B, 5.0%), Barclays PLC ($45.3B, 4.8%), Credit Agricole ($43.9B, 4.7%), Bank of America ($42.8B, 4.5%), Mitsubishi UFJ Financial Group Inc ($39.4B, 4.2%) and Societe Generale ($37.7B, 4.0%).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: BNP Paribas ($20.0B, 4.7%), Toronto-Dominion Bank ($19.4B, 4.6%), Mizuho Corporate Bank Ltd ($17.2B, 4.1%), Sumitomo Mitsui Banking Corp ($16.9B, 4.0%), RBC ($16.3B, 3.8%), Mitsubishi UFJ Financial Group Inc ($15.7B, 3.7%), Sumitomo Mitsui Trust Bank ($15.6B, 3.7%), Bank of Montreal ($14.9B, 3.5%) and Credit Agricole ($14.3B, 3.4%).

The 10 largest CD issuers include: Sumitomo Mitsui Banking Corp ($13.6B, 9.2%), Bank of Montreal ($13.5B, 9.1%), Mitsubishi UFJ Financial Group Inc ($10.2B, 6.9%), Mizuho Corporate Bank Ltd ($9.7B, 6.5%), Sumitomo Mitsui Trust Bank ($9.6B, 6.5%), Canadian Imperial Bank of Commerce ($7.6B, 5.1%), Toronto-Dominion Bank ($6.9B, 4.7%), Credit Suisse ($6.8B, 4.6%), Credit Mutuel ($5.4B, 3.6%) and Landesbank Baden-Wurttemberg ($4.6B, 3.1%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Toronto-Dominion Bank ($11.2B, 5.7%), Societe Generale ($10.7B, 5.5%), RBC ($9.9B, 5.1%), JP Morgan 9$9.7B, 5.0%), Citi ($7.8B, 4.0%), Credit Suisse ($7.0B, 3.6%), BPCE SA ($6.7B, 3.4%), UBS AG ($6.6B, 3.4%), Credit Agricole ($5.8B, 3.0%) and BNP Paribas ($5.8B, 3.0%).

The largest increases among Issuers include: Credit Agricole (up $11.9B to $62.4B), Bank of America (up $8.9B to $46.4B), Citi (up $8.7B to $56.7B), Societe Generale (up $8.4B to $50.7B), BNP Paribas (up $5.0B to $137.9B), Goldman Sachs (up $4.7B to $24.8B), Commerzbank AG (up $2.3B to $9.9B), UBS AG (up $1.8B to $10.9B), DNB ASA (up $1.8B to $9.9B) and Mizuho Corporate Bank Ltd (up $1.2B to $27.9B).

The largest decreases among Issuers of money market securities (including Repo) in October were shown by: US Treasury (down $56.7B to $2,421.2B), Fixed Income Clearing Corp (down $48.0B to $97.0B), Federal Home Loan Bank (down $29.9B to $430.8B), Federal National Mortgage Association (down $11.1B to $102.6B), HSBC (down $10.8B to $21.1B), JP Morgan (down $6.2B to $86.5B), Deutsche Bank AG (down $6.1B to $12.9B), RBC (down $5.6B to $91.1B), Toronto-Dominion Bank (down $4.9B to $35.5B) and Barclays PLC (down $3.8B to $60.2B).

The United States remained the largest segment of country-affiliations; it represents 76.7% of holdings, or $3.547 trillion. France (6.5%, $299.8B) was number two, and Canada (4.8%, $220.7B) was third. Japan (4.6%, $210.5B) occupied fourth place. The United Kingdom (2.4%, $108.8B) remained in fifth place. Germany (1.3%, $59.6B) was in sixth place, followed by the Netherlands (1.2%, $54.4B), Switzerland (0.7%, $32.5B), Sweden (0.6%, $28.1B) and Australia (0.5%, $24.6B). (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 October 31, 2020, Taxable money funds held 33.7% (down from 35.7%) of their assets in securities maturing Overnight, and another 11.6% maturing in 2-7 days (up from 9.5% last month). Thus, 45.3% in total matures in 1-7 days. Another 13.2% matures in 8-30 days, while 12.7% matures in 31-60 days. Note that close to three-quarters, or 71.2% 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 11.6% of taxable securities, while 15.4% matures in 91-180 days, and just 1.9% matures beyond 181 days.

As we mentioned last week, mutual fund trade group the Investment Company Institute published a press release entitled, "Prime Money Market Funds Didn't Trigger Financial Turmoil in March," and a report examining the performance of money market funds during the coronavirus market turmoil earlier this year. Subtitled, "New Paper Shows How Stress in Fixed-Income Markets and Some SEC Reforms Fed into Redemption Pressure," it tells us, "There were serious and widespread dislocations in short-term credit and other fixed-income markets before institutional prime money market funds experienced redemption pressure, and some Securities and Exchange Commission (SEC) reforms exacerbated -- rather than mitigated -- that pressure, according to 'Experiences of US Money Market Funds During the COVID-19 Crisis,' a new paper from the Investment Company Institute (ICI)." We didn't have a chance to fully cover this news late last week as our monthly products shipped, but we excerpt from the release today.

ICI President and CEO Paul Schott Stevens comments, "Money market funds did not trigger the turmoil that struck fixed-income markets in March.... Though the SEC's 2010 and 2014 reforms resulted in a much more resilient money market fund sector, one of the principal 2014 reforms, which gave fund boards the option to impose liquidity fees and gates if a fund dipped below the 30 percent weekly liquid assets threshold, may have intensified flows from institutional prime money market funds instead of moderating them." (See also our Oct 29 News, "ICI's Stevens Keynotes Crane Event, Says Money Funds Didn't Drive Crisis," and our recent Money Fund Symposium Online replay.)

The release explains, "Assertions that institutional prime money market funds caused the financial turmoil in March are inconsistent with the data, explains ICI. For example, as this paper and previous papers demonstrate, many different markets experienced dislocations, including markets for Treasury bonds, longer-term agency securities, municipal securities, corporate bonds, and foreign exchange -- markets in which prime money market funds are not significant players. The report also analyzes the sequence of events that occurred during the COVID-19-related volatility to help assess causality. Importantly, stresses appeared in many of those markets several days before institutional prime money market funds began to see meaningful outflows."

It says, "Though money market funds' experiences during the COVID-19 and global financial crises share some similarities, ICI's paper shows that their differences were significant. Importantly, during March 2020, prime money markets funds were much more liquid than they were in 2007–2009 as a result of the SEC's 2010 and 2014 reforms. From 2007 to 2009, 33 percent of institutional prime money market fund assets, on average, were in weekly liquid assets; that rose to an average of 43 percent from 2010 to June 2020. For retail prime funds, the increase in the proportion of their assets in weekly liquid assets was even more substantial, rising from an average of 27 percent from 2007 to 2009 to 41 percent from 2010 to June 2020."

The release continues, "ICI's paper also details other differences, including that prime money market funds: saw smaller outflows in terms of dollars (page 24); rolled off more repurchase agreements to meet redemptions (pages 26–27); and made less use of Federal Reserve liquidity facilities during the COVID-19 crisis (pages 25–26). In part, these differences reflected the successful elements of the SEC's 2010 and 2014 reforms that made money market funds more resilient, such as requirements for enhanced credit quality, shorter portfolio maturities, and minimum liquidity levels."

ICI states, "The SEC's 2014 money market reforms imposed significant changes on money market funds, including giving prime and tax-exempt fund boards the option to impose liquidity fees and gates if a fund's weekly liquid assets dip below the 30 percent regulatory requirement. This was meant to allow boards to have greater flexibility to determine the best line of defense against heavy redemptions. ICI's paper, however, shows that the potential for liquidity fees and gates may have accelerated redemptions.... [F]rom March 17 to March 24, outflows were much stronger from institutional prime money market funds with weekly liquid assets at or below 35 percent, even though these funds held liquid assets above the required minimum. Given uncertainty about how a fund's board might act if the fund reached the regulatory minimum, some institutional investors treated the 30 percent limit as one to be avoided instead of a significant liquidity cushion."

The press release adds, "The Federal Reserve established several liquidity facilities to support households, businesses, and the US economy overall, including the Money Market Mutual Fund Liquidity Facility (MMLF). ICI's paper explains that these various facilities were both necessary and appropriate to helping restore liquidity and the flow of credit to the economy. As the paper discusses, the MMLF helped institutional prime money market funds meet their investors' demands for liquidity and helped stabilize the supply of liquidity to financial firms that borrow through short-term credit markets.... That said, prime money market funds' use of the facility was much more limited than their use of a similar facility in 2008—$53 billion in 2020 compared to $152 billion in 2008." (Watch for more excerpts and coverage of the full report in coming days.)

In other news, Crane Data's latest monthly Money Fund Portfolio Holdings statistics will be sent out Tuesday, and we'll be writing our normal monthly update on the October 31 data for Wednesday's News. But we also published a separate and broader Portfolio Holdings data set based on the SEC's Form N-MFP filings on Monday. (We continue to merge the two series, and the N-MFP version is now available via Holding file listings to Money Fund Wisdom subscribers.) Our new N-MFP summary, with data as of Oct. 31, 2020, includes holdings information from 1,069 money funds (up three from last month), representing assets of $4.798 trillion (down $143 billion). Prime MMFs now total $960.1 billion, or 20.0% of the total, down from $999.0 billion a month ago. We review the new N-MFP data below.

Our latest Form N-MFP Summary for All Funds (taxable and tax-exempt) shows Treasury holdings totaled $2.443 trillion (down from $2.494 trillion), or a massive 50.9% of all holdings. Repurchase Agreement (Repo) holdings in money market funds totaled $997.6 billion (down from $1.050 trillion), or 20.8% of all assets, and Government Agency securities totaled $730.0 billion (down from $768.3 billion), or 15.2%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.171 trillion, or a stunning 86.9% of all holdings.

Commercial paper (CP) totals $230.8 billion (down from $240.5 billion), or 4.8% of all holdings, and Certificates of Deposit (CDs) total $148.5 billion (down from $156.9 billion), 3.1%. The Other category (primarily Time Deposits) totals $157.1 billion (up from $138.1 billion), or 3.3%, and VRDNs account for $91.3 billion (down from $93.0 billion last month), or 1.9% of money fund securities.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $141.2 billion, or 2.9%, in Financial Company Commercial Paper; $47.9 billion or 1.0%, in Asset Backed Commercial Paper; and, $41.7 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($562.7B, or 11.7%), U.S. Govt Agency Repo ($384.9B, or 8.0%) and Other Repo ($50.0B, or 1.0%).

The N-MFP Holdings summary for the 208 Prime Money Market Funds shows: Treasury holdings of $271.8 billion (down from $276.5 billion), or 28.3%; CP holdings of $225.7 billion (down from $235.0 billion), or 23.5%; CD holdings of $148.5 billion (down from $156.8 billion), or 15.5%; Repo holdings of $138.4 billion (down from $161.3 billion), or 14.4%; Other (primarily Time Deposits) holdings of $105.2 billion (up from $92.9 billion), or 11.0%; Government Agency holdings of $59.0 billion (down from $65.4 billion), or 6.1% and VRDN holdings of $11.6 billion (up from $11.2 billion), or 1.2%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $141.2 billion (down from $143.4 billion), or 14.7%, in Financial Company Commercial Paper; $47.9 billion (down from $52.5 billion), or 5.0%, in Asset Backed Commercial Paper; and $36.6 billion (down from $39.1 billion), or 3.8%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($39.9 billion, or 4.2%), U.S. Govt Agency Repo ($48.5 billion, or 5.0%), and Other Repo ($50.0 billion, or 5.2%).

Crane Data's latest Money Fund Market Share rankings show assets were down for most of the largest U.S. money fund complexes in October. Money market fund assets decreased $46.8 billion, or -1.0%, last month to $4.746 trillion. Assets have fallen by $218.1 billion, or -4.3%, over the past 3 months, but they've increased by $827.2 billion, or 21.3%, over the past 12 months through Oct. 31, 2020. The biggest increases among the 25 largest managers last month were seen by BlackRock, Morgan Stanley, SSGA and Federated Hermes, which grew assets by $10.3 billion, $7.3B, $6.2B and $3.9B, respectively. The largest declines in assets in October were seen by JP Morgan, Goldman Sachs, Northern and Invesco, which decreased by $23.0 billion, $20.0B, $8.9B and $7.4B, respectively. 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. We review the latest market share totals below, and we also look at money fund yields in October.

Over the past year through Oct. 31, 2020, Fidelity (up $112.5B, or 14.5%), BlackRock (up $105.3B, or 31.8%), Wells Fargo (up $94.7B, or 74.8%), Vanguard (up $83.0B, or 20.7%), Morgan Stanley (up $74.0B, or 59.1%), JP Morgan (up $63.4B, or 18.6%) and Federated Hermes (up $57.7B, or 19.2%) were the largest gainers. These complexes were followed by Goldman Sachs (up $50.1B, or 22.7%), Northern (up $48.7B, or 39.5%) and First American (up $41.8B, or 57.4%). BlackRock, First American, Wells Fargo, Morgan Stanley and Vanguard had the largest money fund asset increases over the past 3 months, rising by $30.3B, $18.7B, $16.4B, $8.0B and $2.9B, respectively. The largest decliners over 3 months included: Goldman Sachs (down $123.6B, or -30.7%), JP Morgan (down $40.7B, or -8.8%), SSGA (down $32.5B, or -20.1%), Schwab (down $15.8B, or -7.5%) and UBS (down $15.4B, or -18.0%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $899.6 billion, or 19.0% of all assets. Fidelity was up $2.7 billion in October, down $6.2 billion over 3 mos., but up $112.5B over 12 months. Vanguard ranked second with $491.6 billion, or 10.4% market share (up $2.0B, up $2.9B and up $83.0B for the past 1-month, 3-mos. and 12-mos., respectively). BlackRock was third with $442.7 billion, or 9.3% market share (up $10.3B, up $30.3B and up $105.3B). JP Morgan fell to fourth with $412.8 billion, or 8.7% of assets (down $22.9B, down $40.7B and up $63.4B for the past 1-month, 3-mos. and 12-mos.), while Federated Hermes took fifth place with $366.0 billion, or 7.7% of assets (up $3.9B, down $10.4B and up $57.7B).

Goldman Sachs was in sixth place with $291.9 billion, or 6.2% of assets (down $20.0 billion, down $123.6B and up $50.1B), while Wells Fargo was in seventh place with $224.4 billion, or 4.7% (up $2.0B, up $16.4B and up $94.7B). Morgan Stanley ($208.0B, or 4.4%) was in eighth place (up $7.3B, up $8.0B and up $74.0B), followed by Dreyfus/BNY Mellon ($194.7B, or 4.1%, down $3.0B, down $10.8B and up $40.6B). Schwab was in 10th place ($184.1B, or 3.9%; down $3.6B, down $15.8B and down $13.1B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($172.7B, or 3.6%), American Funds ($157.3B, or 3.3%), SSGA ($125.7B, or 2.6%), First American ($111.3B, or 2.3%), Invesco ($65.1B, or 1.4%), UBS ($62.8B, or 1.3%), T. Rowe Price ($39.8B, or 0.8%), HSBC ($35.1B, or 0.7%), DWS ($33.6B, or 0.7%) and Western ($32.2B, or 0.7%). Crane Data currently tracks 67 U.S. MMF managers, the same as last month.

When European and "offshore" money fund assets -- those domiciled in places like Ireland, Luxembourg and the Cayman Islands -- are included, the top 10 managers appear as Fidelity, BlackRock, JP Morgan, Vanguard, Goldman Sachs, Federated Hermes, Morgan Stanley, Wells Fargo, Dreyfus/BNY Mellon and Northern. 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 ($910.5 billion), BlackRock ($639.9B), JP Morgan ($624.3B), Vanguard ($491.6B) and Goldman Sachs ($421.7B). Federated Hermes ($375.9B) was sixth, Morgan Stanley ($256.7B) was in seventh, followed by Wells Fargo ($225.4B), Dreyfus/BNY Mellon ($214.7B) and Northern ($197.5B) which round 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 November issue of our Money Fund Intelligence and MFI XLS, with data as of 10/31/20, shows that yields were largely unchanged in October for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 741), was flat at 0.02% for the 7-Day Yield (annualized, net) Average, and the 30-Day Yield was also unchanged at 0.02%. The MFA's Gross 7-Day Yield was unchanged at 0.19%, the Gross 30-Day Yield was also flat at 0.19%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.03% (down 1 bps) and an average 30-Day Yield that decreased by 1 bps to 0.03%. The Crane 100 shows a Gross 7-Day Yield of 0.19% (down 1 bps), and a Gross 30-Day Yield of 0.19% (down 1 bps). Our Prime Institutional MF Index (7-day) yielded 0.05 (down by 1 bps) as of October 31, while the Crane Govt Inst Index was 0.02% (unch.), the Treasury Inst Index was also 0.02% (unch). Thus, the spread between Prime funds and Treasury funds is 3 basis points, while the spread between Prime funds and Govt funds is 3 basis point. The Crane Prime Retail Index yielded 0.02% (unch.), while the Govt Retail Index was 0.01% (unchanged) and the Treasury Retail Index was 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yield was unchanged in October at 0.02% (unch).

Gross 7-Day Yields for these indexes in October were: Prime Inst 0.24% (down 1 bps), Govt Inst 0.17% (unchanged) Treasury Inst 0.17% (unchanged), Prime Retail 0.25% (unch.), Govt Retail 0.15% (unch.) and Treasury Retail 0.17% (unch. from the previous month). The Crane Tax Exempt Index was unchanged at 0.21%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.01% over 3-months, 0.37% YTD, 0.63% over the past 1-year, 1.42% over 3-years (annualized), 1.01% over 5-years, and 0.52% over 10-years.

The total number of funds, including taxable and tax-exempt, was unchanged 924. There are currently 741 taxable funds, unchanged from the previous month, and 183 tax-exempt money funds (unchanged from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.

The November issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Callahan, Cunningham on Future of Money Funds," which highlights comments from our recent Money Fund Symposium Online; "ICI's Stevens Tells Symposium: MMFs Didn't Drive Crisis," which quotes from Paul Schott Stevens' MFS keynote speech; and, "Corporates Discuss Liquidity, Prime During AFP Virtual," which covers a cash investment session from the recent AFP 2020 Virtual Experience. We've also updated our Money Fund Wisdom database with October 31 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our November Money Fund Portfolio Holdings are scheduled to ship on Tuesday, November 10, and our November Bond Fund Intelligence is scheduled to go out Monday, November 16.

MFI's lead article says, "Our latest webinar included a session on 'The Future of Money Funds & Cash,' which featured our Peter Crane moderating a panel with Tom Callahan of BlackRock and Debbie Cunningham of Federated Hermes. The three discussed the money fund business overall, prime exits, ESG, portals, technology and potential regulatory changes."

On future reforms, Callahan comments, "Broadly, we think that there needs to be a reform of the commercial paper market and secondary trading, because secondary market liquidity really doesn't exist when you need it in the CP market. Whatever happens to prime funds ... if the CP market isn't fixed in the next crisis, the Fed is going to be right back in bailing the CP market out.... We think there needs to be changing around how banks are able to intermediate and how CP sits on bank balance sheets to make the most logical intermediary more available in these markets when they're needed."

Our latest "Profile" reads, "We recently hosted "Crane's Money Fund Symposium Online," which began with the keynote speech, 'Covid's Impact on Money Markets,' from Investment Company Institute President & CEO Paul Schott Stevens. He tells us, 'Thank you, Pete, for that introduction and for the opportunity to join you.... This conference, virtual though it is, is just another example of the invaluable service that Crane Data and you Pete personally provide to the fund industry and to cash managers everywhere.... I thank you most sincerely for your contributions and for your friendship."

He explains, "As you've alluded to, this conference is one of my last public events as President and CEO of ICI. In January, I announced my retirement effective at year end.... It's been 16 1/2 years in this role. Earlier this month, the institute's board unanimously elected a new president and CEO Eric Pan, who will take the reins on Nov. 9th.... I'm pleased to be leaving ICI in such capable hands."

Stevens says, "I spent nearly half of my working life at ICI. Before I leave, I have one last assignment directing the completion of a comprehensive report on the market turmoil triggered by the Covid-19 pandemic and the economic restrictions that governments imposed in response. We are focusing especially on the experiences of regulated funds in that episode. We are currently publishing that report as a series of research papers, and the next paper we publish will look at money market funds, which landed back in the headlines in March because institutional prime funds had outflows, and because the Federal Reserve created a Money Market Mutual Fund Liquidity Facility to add liquidity to the markets and restore the flow of credit to the economy. (Note: ICI released its "Report of the Covid-​19 Market Impact Working Group: Experiences of US Money Market Funds During the COVID-​19 Crisis" yesterday.)

The "Corporates" article tells readers, "The Association for Financial Professionals' held its 'AFP2020 Virtual Experience' (see our Oct. 8 Link of the Day, 'AFP2020 to Feature ICD, More Cash') over the last two weeks in October. While it didn't hold a candle to the live event, there were a handful of interesting sessions discussing cash investments, including one entitled, 'Aligning Investment Strategy with Your Company's Operations.' This panel, led by Sebastian Ramos of ICD, featured Kim Kelly-Lippert of American Honda, Ryan Seghesio of California ISO and Tom Wolfe of MGM Resorts."

Kelly-Lippert says, "Pre-covid, we were big proponents of the prime funds.... In addition to the prime funds, we utilize government money market funds, bank deposits, euro time deposits, and then for some additional yield pickup we occasionally took advantage of a very selective [group of] asset-backed securities. But the majority of our liquidity was available overnight. We redeem the funds out of our money market funds for our daily obligations."

The latest MFI also includes the News piece titled, "Federated's Donahue Asked About Regs," which says, "During their Q3 earnings call, he comments, 'I believe that the thing that’s being talked about the most is the restriction on that 30% [liquidity] trigger.... It caused more problems than it solved. And there are a lot of ways around that. If the SEC wants to keep the trigger, fine. You just don't have to do the things that wave a red flag in front of the marketplace. Ameliorating the impact of that 30% is the number one thing that's being discussed. [M]oney market funds came through this situation much like they did before, with a lot of resilience. Therefore there is no need to further diminish prime funds.... We just don't think that it makes a lot of sense to eliminate the spear point of the short term markets at this time. So what will happen with regulation? I cannot predict, but I can assure you that we will be in there defending the beauty and efficacy of prime money market funds.'"

A second news brief entitled, "SEC Statistics: Assets, Yields Down Again; Prime Drops Below $1 Trillion," tells us, "The Securities and Exchange Commission's latest 'Money Market Fund Statistics' summary shows that total money fund assets fell $117.8 billion in September to $4.863 trillion, the 4th decrease in a row but just the 5th over the past 25 months. The SEC shows Prime MMFs dropped by $145.6 billion in September to $992.8 billion (reflecting the reclassification of Vanguard Prime MMF), while Govt & Treasury funds rose $35.3 billion to $3.749 trillion. Tax Exempt funds decreased $7.5 billion to $121.1 billion. Yields were mixed in September with Prime and Govt & Treasury yields falling while Tax Exempt yields increased."

Our November MFI XLS, with October 31 data, shows total assets dropped by $46.8 billion in October to $4.748 trillion, after decreasing $121.2 billion in September $42.3 billion in August, $44.2 billion in July and $113.0 billion in June. Assets increased $31.6 billion in May, $417.9 billion in April and $688.1 billion in March. Our broad Crane Money Fund Average 7-Day Yield fell to 0.02% during the month, our Crane 100 Money Fund Index (the 100 largest taxable funds) sits at 0.03%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was unchanged at 0.19% while the Crane 100 was also 0.19%. Charged Expenses averaged 0.16% for both the Crane MFA and Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 10/31.) The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 41 (up one day) and 45 days (up a day) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

J.P. Morgan Asset Management published a brief on the "J.P. Morgan Prime Money Market Fund," entitled, "Capitalizing on prime money market funds (MMFs)." They write, "In times like these, it's important to understand how the markets can impact your cash portfolio. During the month of March as COVID-19 gripped markets, our Prime Money Market Fund maintained weekly liquid assets above 35% and a floating net asset value within an attractive range relative to our peers, highlighting our conservative management style, attractive portfolio positioning and ultimately superior performance. Despite the volatility this past year, we would like to reiterate the importance of prime in your portfolios as an important diversifier and yield enhancer for your cash portfolio." (Note: The Investment Company Institute released its "Report of the Covid-19 Market Impact Working Group: Experiences of US Money Market Funds During the COVID-19 Crisis" Thursday morning. See their press release, "ICI: Prime Money Market Funds Didn't Trigger Financial Turmoil in March," and watch for more coverage in the pending November issue of our Money Fund Intelligence.)

JPMAM's document says there are, "Four Reasons to Invest in Prime Today," including "attractive yield, size matters, active liquidity management and historical FNAV. It explains, "Spreads between government and prime MMFs remain attractive by historical standards and yields on prime MMFs are compelling relative to other investments. This spread will remain compelling even as rates approach zero. During the last zero interest rate period, prime money market funds still offered meaningful yield above government and treasury funds."

It continues, "With AUM of over $80 billion, the J.P. Morgan Prime Money Market Fund is the largest prime MMF in the industry. Scale of this magnitude can enhance investor diversification, cash flow flexibility, and trading and execution efficiency.... We actively manage Weekly Liquid Assets (WLA) well above the 30% regulatory threshold by implementing a robust liquidity buffer. We can utilize a number of tools to increase the buffer, such as limiting term security purchases and/or selling portfolio securities. We also employ a rigorous governance framework to manage client concentration risk. Lastly, our dedicated distribution model fortifies our client relationships, supporting active dialogue and significantly curtailing unknown cash flow activity."

Lastly, they comment, "Our focus on risk management and credit analysis plays a critical role in keeping FNAV fluctuations within a narrow band. The high-end of the recent range of the NAV was heavily influenced by the Federal Reserve's emergency rate cuts which totaled 150 basis points over just a thirteen day period. In the days that followed, the NAV dipped below $1.0000, but the recovery back to par was rapid as the Fed stepped in to support the orderly functioning of fixed income markets."

In other news, a Prospectus Supplement for the T. Rowe Price Summit Municipal Money Market Fund explains, "On May 4, 2020, the Board of Directors of the T. Rowe Price Summit Municipal Money Market Fund (the 'Fund') approved a plan of reorganization pursuant to which the Fund will transfer substantially all of its assets and liabilities to the T. Rowe Price Tax-Exempt Money Fund (the 'Acquiring Fund') in exchange for Investor Class shares of equal value of the Fund (the 'Reorganization')."

It continues, "If the proposal is approved by a majority of the Fund's shareholders, the Reorganization is expected to close on or around October 19, 2020, at which point Fund shareholders will receive Investor Class shares of the Acquiring Fund representing the same total value as their shares of the Fund on the business day immediately preceding the closing. The Reorganization is not a taxable event, but redeeming or exchanging shares of the Fund prior to the Reorganization may be a taxable event depending on your individual tax situation."

TRP also says, "Following the Reorganization, the Investor Class shares received in the exchange will be distributed to the Fund's shareholders in complete liquidation of the Fund. The Fund and the Acquiring Fund have relatively similar investment objectives and investment programs, the same portfolio manager(s) and similar performance history.... To allow for potentially greater economies of scale and to reduce inefficiencies resulting from substantially duplicate products, the Fund and the Acquiring Fund's Boards of Directors determined that (i) participation in the transactions is in the best interest of shareholders of the Fund and the Acquiring Fund and (ii) the interests of existing shareholders will not be diluted as a result of the transactions."

A separate filing adds, "On October 20, 2020, the assets and liabilities of the fund were transferred to, and the fund was reorganized into, the T. Rowe Price Tax-Exempt Money Fund through a tax-free reorganization. As a result, the fund is no longer offered to shareholders for purchase."

Finally, Federated Hermes posted a monthly commentary entitled, "Plenty on the plate." Author Deborah Cunningham writes, "Polls and predictions won't matter for long as Election Day arrives tomorrow, but uncertainty is going to stick around longer. Historically, the money markets don't experience volatility anywhere near that of other asset classes, but they don't like uncertainty any less than their equity and fixed-income brethren. No matter who wins the election, there will be heightened anxiety and many unknowns."

She continues, "In the financial sphere, we will see continued scrutiny of money market funds. This was a topic of discussion during Crane Data's online Money Fund Symposium last week. (Thanks again to Peter Crane for inviting me to speak.) A major focus was the persistent inaccurate blame ascribed to money funds for the March crisis. Paul Schott Stevens, soon to retire from a celebrated tenure as CEO of the Investment Company Institute (ICI), laid out the subject well in a keynote address. He rightly pointed out that the Federal Reserve intervened to support the entire financial system. The Money Market Mutual Fund Liquidity Facility (MMLF) was just one of eight programs the Fed launched and was 'dwarfed by other Fed actions.' He added that, 'When usage of the MMLF was at its peak on April 8, that facility accounted for only 2.7% of the expansion of the Fed's balance sheet.'"

Cunningham comments, "The fact that policymakers had to rescue nearly every part of the financial sphere hasn't stopped many pundits from -- again -- making money funds the scapegoat. Yet it was the broader market, especially both commercial paper and CD primary- and secondary-market trading, that froze. Banks and dealers didn't make markets with their own paper, let alone that of other firms. That was unprecedented. The focus must be there. Stevens and Federated Hermes argue that money funds actually alleviated the pressure. All funds were able to provide daily liquidity with a market rate of return at par. Not a single fee was levied or a gate shut. No clients were unable to redeem shares. Our hope is that regulators will realize the money fund reforms of 2016 didn't address the source of the problem, but rather a symptom."

She adds, "The future of the cash-management sector is not just about the past. Plans to enhance access to it both across the globe and through an expanded window of time through new technology are just some of the positive developments. The shift from the London interbank offered rate (Libor) to the Secured Overnight Financing Rate (SOFR), while rocky, is progressing and will leave the industry with a stronger, more reliable and more trusted system."

Cunningham concludes, "As for the near future, after the election is decided we expect some measure of fiscal stimulus. This should bring a wave of Treasury bill issuance to fund stimulus checks, action that could offer relief to short-term rates. For now, the Treasury and Libor yield curves remain fairly flat, and SIFMA, while rising slightly over October, has been holding fairly steady. We kept the weighted average maturities of our funds in our target ranges of 35-45 days for government and 40-50 days for prime and municipals during the month."

One week ago, we hosted our "Money Fund Symposium Online," which featured an afternoon of presentations and discussions on money market mutual funds. Last Thursday, we quoted from the keynote speech (see our Oct. 29 News, "ICI's Stevens Keynotes Crane Event, Says Money Funds Didn't Drive Crisis"), and yesterday we quoted from the closing panel (see "More Symposium Highlights: Callahan, Cunningham on Future of MMFs"). Today, we excerpt from our "Ratings Focus: Governance, Global & LGIPs," segment, which featured brief presentations from S&P Global Ratings' Michael Masih, Moody's Investors Service's Rory Callagy and Fitch Ratings' Greg Fayvilevich. (For those that missed it, the MFS Online recording is available here. Our next webinar, European Money Fund Symposium Online, is Nov. 19 from 10am-12pmET.)

Moody's Callagy comments, "Before I get to our thoughts on credit quality within money funds and thoughts on ESG, I just want to do a lay of the land in terms of our outlook for the money fund industry. On the 18th of March, we changed our outlook for the industry to negative from stable. With the onset of the coronavirus we saw significant dislocation in the short term credit markets, which resulted in a stress on funds' NAVs and funds' liquidity. And while we didn't take any rating actions on funds in the U.S. or Europe as a result, the Fed and other central banks stepped in and governments, to provide unprecedented support that helped normalize markets."

He explains, "Our view was the industry overall would be challenged and that there would continue to be stress in the market. So we maintain a negative outlook. Looking ahead to 2021, I think some of the challenges that the industry faces [include] we expect more fee waivers, which will weigh on the profitability of money market fund sponsors. The spread between prime and government funds has narrowed, which makes the Prime segment less attractive to investors."

Callaghy adds, "And lastly, this was touched upon in the last segment, but our expectation is that we'll see more regulation in the money fund space. It may not be next year, but in the coming years as a result of some of the performance issues that we experienced earlier this year. And that's likely to cause additional players to exit the market, so that will lead to a more consolidated industry as ... some may make the decision that the investment to comply with the new regulations is not worth the return. We think that the industry as a result, becomes even more concentrated than it already is, which reaffirms our view that there are still some negative headwinds that the industry will face next year."

S&P's Misah tells us, "Some of the key metrics that I'll highlight today are tier one credit quality, portfolio composition, maturity distributions, net asset movements and obviously yields as well. We'll start off with yields. Obviously, it's been a key theme and topic in the industry over the last couple of months. In the most recent quarter, with the lower rates impacting yields from money market funds, we really saw higher yielding paper prior to the Fed's actions in March sort of starting to mature off, which has started to show yield compression amongst the money market funds. So about 3 basis points for government funds and 13 basis points for prime funds, respectively. It's very similar for the 7-day yield and 30-day yield. But, based on where the Fed direction and guidance is, we're going to stay in a lower rate environment for the long term."

He continues, "With regards to AUM and flows, at the end of the third quarter U.S. money market fund assets, in terms of the rated side, stood at $3.1 trillion. We saw rated government funds see outflows of 6.3% to stand at approximately $2.6 trillion. We think that the main driver for this slowdown was obviously the compressed yields, but also some investors decide to shift outside of money market funds to seek additional high yielding or better yielding liquidity products such as ultra-short funds and possibly SMAs, or separately managed accounts. Despite the ongoing concern with the pandemic and potential for additional volatility, prime fund assets actually remained fairly consistent at around $500 billion over the last quarter."

Misah also says about portfolio composition, "For both prime funds and government funds, we continue to see higher quality assets in general. As of September, government funds held about 57% in direct treasury exposure versus 38% this time last year, and then the remainder of allocations to repo and agencies. For prime funds, we saw about 10% holdings in direct treasuries versus 3% this time last year ... then the remainder of prime funds are invested in overnight time deposits, repo and corporate CP. We actually saw a little bit of an uptick on corporate CP allocations, to about 25% versus about 20% the last quarter.... An overwhelming majority of rated funds' mark-to-market NAVs, ranged within a narrow band of 0.9995 to 1.0005. So, you certainly see more stabilization there."

Callagy also comments, "Michael touched on the fact that prime funds are managing more cautiously, and as a result they're holding more sovereign assets, Treasury assets, which improves the credit quality of the funds overall. When we think about credit quality within prime funds, we're really looking through to the banking sector and the credit worthiness of banks globally. When we started the year, Moody's had 14% of its banking systems on a negative outlook, now, that's 76%. So, with the onset of the coronavirus and the crisis that we're currently living in, that's had a significant impact on operating conditions for banks."

He continues, "Moving into ESG, this is an area that, just stepping outside of money market funds, we think is going to be where the next big secular growth area is for the asset management industry. Investors globally are more focused on this and demanding that the asset managers that they allocate to are taking ESG seriously and implementing it, incorporating it into its investment processes. We've seen a couple of dedicated ESG funds launch in the U.S. and Europe. I don't think we see a flurry of dedicated ESG products coming behind that. I think what you will more likely see is that asset managers will be incorporating ESG considerations into their investment process, which will feed into the investment strategies that they put into the market."

Callaghy adds, "In terms of money market funds, prime money market funds, they invest mostly in banks. The factors I think are most relevant would be governance, and we've seen some recent governance issues in the banking space, as well as social considerations. So those are some of the main points. But I think, for the ESG market to take off even further in the US, I think you have to see more standardization. There's a lack of standardization in the markets. There is also this perception that you have to give up some return in order to do good. I think we think that that's somewhat of a misperception, and that will be proven out over time as more money is allocated to these types of strategies. But expect more to come in the ESG space for money market funds."

Finally, Fitch's Fayvilevich comments on LGIPs, or local government investment pools, "We divide LGIPs into two main categories. What we call the liquidity LGIPs, those really look very similar to money market funds, most often prime money market funds, they will invest in credit, they'll adhere to pretty much all of the 2a-7 requirements, including the 60-day WAM, etc. The differences and maybe the advantages of LGIPs are that they are not regulated by the SEC, and they can kind of set their own rules. There are some ground rules that ... the Accounting Standards Board sets for them. `The two main advantages are, one, they can continue operating at a stable NAV, so even for prime style funds no floating NAV requirement, as well as no fees and gates. So, around money market reform time, and since then, we've seen some migration of public sector entities who could invest in these types products move away from prime funds into LGIPs."

He continues, "The second type of LGIPs that we classify are what we call short term LGIPs, so they look much more like short term bond funds. Not so much ultra-short, but really short term with durations in a one to two-year area, and max maturity is going out three to five years. They buy a lot of government securities, long-dated treasuries, agencies, often ABS as well, and investment credit. These two types of LGIPs, they can range all over the place in terms of how they're managed. They can be externally managed by similar fund managers who manage money market funds, or they can be internally managed by the county Treasury Department, state level, or you have city level LGIPs. Each will cater to different types of investors. There are also rated and non-rated LGIPs, so the dashboard reflects a mix of all these."

Fayvilevich adds, "The trend ... in terms of assets is significant growth in this space. The LGIPs we track are now up to a record, at least in terms of our data set, of about ... $350 billion dollars in AUM, and actually grew by just over $50 billion year-over-year. We've seen more of the growth in the liquidity style LGIPs than the short term bond funds.... The assets have an element of seasonality.... You'll see that in the second quarter and in the fourth quarter especially, there's a lot of money coming in and that really has to do with the tax collection season.... Money going out, this is also fairly predictable and generally on payroll, debt service or proceeds from debt issuance and things like that, and certain projects that have defined timeframes. The advantage these type of vehicles have is that the cash flows are much more predictable."

Last week, Crane Data hosted its, "Money Fund Symposium Online," which featured a series of presentations and discussions on money market mutual fund topics. The final segment, entitled, "The Future of Money Funds & Cash," included our Peter Crane moderating a panel with Tom Callahan of BlackRock and Debbie Cunningham of Federated Hermes. The three discussed the money fund business overall, prime exits, ESG, portals, technology and potential regulatory changes. We quote from this session below. (Thanks once more to our excellent speakers and sponsors. If you missed it, the recording is available here or via Crane Data's Webinar page. Finally, register for our next two events: European Money Fund Symposium Online, Nov. 19 from 10am-12pmET; and Money Fund Wisdom Demo & Training, Dec. 16, 1-2pmET.)

On future reforms and the pending ICI report, Callahan comments, "Broadly, we think that there needs to be a reform of the commercial paper market and secondary trading, because secondary market liquidity really doesn't exist when you need it in the CP market. Whatever happens to prime funds ... if the CP market isn't fixed in the next crisis, the Fed is going to be right back in bailing the CP market out. We think that's the cornerstone of it. We think there needs to be changing around how banks are able to intermediate and how CP sits on bank balance sheets to make the most logical intermediary more available in these markets when they're needed."

He continues, "We feel like the 2016 reforms were effective in many, many ways. [But] I mean, can you imagine in March if the prime market was $1 trillion dollars bigger? It would have been a much bigger problem to get your arms around. So, we think directionally a lot of things worked. But clearly this issue of 30% weekly liquid assets is one that I think we need to take a good hard look at, because what you saw was something that was meant to be a protection and a buffer to funds actually ended up hurting the funds. It was an accelerant to investors leaving. So those were the points that we made. I think a lot of those will be in the ICI paper."

Cunningham says, "I agree 100% on the assessment on the CP market. Secondary market makers in that aspect of the business, not just for commercial paper, but also for CDs [need to be examined]. Things went wrong in March that were really unprecedented.... I think you've got to basically look at the high quality, short term credit sector as a whole entity and figure out how from an exchange perspective, from a regulatory standpoint, changes can be made."

She explains, "A couple of things on the 30% weekly liquid assets. I do think the benefit to investors leaving early is that the products were very, very well situated to deal with that, and literally were just fighting a regulation as opposed to fighting for liquidity, pricing, credit, any of those types of a crucial aspects. Having said that ... I think ... there are plenty of other products, local government investment pools, other types of private funds, collective funds, that have a similar regulations from a 30% weekly liquid assets requirement, but don't have the 'cliff effect,' the knock-on effect, that is associated with the gates and fees aspect of 2a-7 regulations."

Cunningham adds, "Similarly, also on the offshore side, from a UCITs perspective, there is a gates and fees associated with the weekly liquid assets. But there's a second part of the test that's administered. It's a two-step test, and none of the offshore funds crossed over that or even really got close to it. So, I think there are lots of ways that the market and the funds can be addressed and explored. And certainly, those of us that have worked with the ICI as well as provided input to the SEC, the Fed, Treasury, whoever will listen at this point, the FCA, the Bank of England, you name it, hopefully this is something that we can make those points valid and understood."

Crane then asked, "Is the money fund business still viable?" Callahan responds, "The short answer is, 'Absolutely.' I'm pretty sure 2a-7 funds are up almost $1 trillion dollars year-to-date. Tell me another asset class that has grown a trillion dollars in a year. And you know the premise ... I think it comes from a lot of the negative tones that are in the press around money funds. I actually am very proud of our industry. I think we performed incredibly well under very, very difficult circumstances in March. People talk a lot about the unprecedented outflows that we saw in prime funds. Yes, they were unprecedented, but there were no gates. There were no fees. Certain managers took certain steps to protect their shareholders and protect their clients. And they did so. But there was no money lost. No one was trapped."

He tells us, "Are there changes that need to be made? I mean, this was the inaugural voyage of 2a-7 post-2016 reforms, and we learned a lot.... Did they get it perfect? No. Did they get it mostly right? I think so. So, there are changes that need to be made. But what you don't hear enough about is the service that we provided to our clients. There was, and you know this, a trillion and a quarter that rushed into government funds at the peak. One of the reasons why I love this industry, and most of us that are in it love it, is because there's an intimacy to cash management that you don't get in other parts of investment management. Most other places a client buys a product and you check in with them four times a year and see how they're doing. Cash, we talk to our clients every single day, sometimes multiple times a day, because cash is moving in and out. And when our clients needed us, because in March and April liquidity was life, the cash management industry was there."

Callahan adds, "I'm actually remarkably bullish. We’re going to talk a little bit later on about technology and ESG, some of the accelerants and the propellants, I think, for growth. Debbie, I hope you're right on [length of] zero rates. I hope it's one to three, not three to five [years] or longer…. But when we come out of this, I think that the cash management industry is poised for growth. I'll just stop with the obvious, which is the central bank policy is incredibly accommodative.... We know that the one safe bet about Covid is this is all going to take longer than any of us thought ... which means that corporations are going to continue to hold very high levels of cash. It means they're going to need money funds; they're going to need the cash management industry. So, I have a much more bullish, optimistic view on the industry than maybe some others."

On fee waivers with higher assets, Cunningham tells us, "It's kind of a double-edged sword. There's a lot of factors that go into the determination of waivers. First of all, let me say that waivers are not losses. Sometimes I think when you hear the press talk about waivers, they automatically think those are losses. They are a negative against profit, but that just means less in earnings, not necessarily losses along the line of a true negative. I think that's a misnomer in the press.... I do think that we're going to see some more consolidation. Certainly, when you look at the 2008-2016 timeframe where we were in an extended time period of low interest rates, you saw consolidation. I think you're probably going to see more of the same. We've actually ... started to see it already with some prime products disappearing."

Callahan also comments, "We are sticking with prime, and that comes from a place of having obviously been through the GFC and [now] the Covid crisis. We feel like we know how to manage these products. We also understand the clients that purchase them. Some of the players that pulled out of this market were more sort of retail focused and they were retail sweep vehicles. At BlackRock, we are largely an institutional shop when it comes to money funds. The clients that buy these products are sophisticated institutional clients that understand the risks and understand the benefits. They're very, very important products to our clients, and the longer we stay at zero, that extra 8, 10 basis points really matters to clients. At BlackRock, more than anything, we service our clients and we listen to our clients. The products are important to our clients, so they're important to us."

He states, "Now, that said, we are very eyes wide open. We've been very involved in a lot of the industry dialogues, as has Debbie, and with regulators. I think, there is no question that change is coming to this sector, and I think it's very difficult for anyone to predict where all of this lands. I think there's some election contingency on the magnitude and the speed of those changes. But, you know, to me, it's nearly a locked, dead certainty at this point that there is a prime fund regulation 2.0."

Callahan adds, "There's probably a spectrum of really draconian changes that effectively ban the products to things that I think are more manageable and workable. And I think that's our job in the industry is to try to steer it to a better place. But we're preparing for whatever comes; we're preparing for contingencies. Institutional prime is, in terms of our overall book, a very small percentage of our total cash assets if you strip out some of those internal funds only that you talked about. So it's not that our franchise rides on the future prime, again it's a very small percentage of our assets, but it's important to our clients and our clients are important to us. So, we are remaining committed, but ready for whatever comes."

Finally, Callahan says about ESG MMFs, "I think one of the exciting things that's happened is that it's branched out just beyond sustainability. There are a number of players in the market that have launched social justice-focused funds.... And so, I think that's part of this kind of meta trend that we're seeing with so many of our clients that are looking to express views on sustainability, views on social justice through their largest holding. And right now, as we've talked about on this call, their largest holding is cash. So, I think it's really exciting. I think that it's going to breed a lot of new product, a lot of innovation. It is really, really resonating with our clients, and I think it's only just starting."

Federated Hermes, the 5th largest manager of money market funds, reported earnings Thursday and discussed a number of topics involving money funds during its conference call Friday morning. (See Seeking Alpha's Earnings Call Transcript here.) President and CEO Chris Donahue comments, "Moving to money markets, the Q3 asset decrease of $25 billion was mostly from money market funds, which decreased from Q2's record high, and to a lesser extent seasonal declines in separate account assets. Money market fund asset decreases were attributed to corporate clients using cash to pay down debt or spend on their businesses and ... the use of cash by government entities among other factors. Our money market mutual fund market share including sub advised funds at quarter end was nearly unchanged from the prior quarter at 8.1%."

He explains, "Taking a look now at recent asset totals, managed assets were approximately $614 billion, including $430 billion in money markets, $81 billion in equities, $81 billion in fixed income, $18 billion in alternative and $4 billion in multi asset. Money market mutual fund assets were $322 billion."

CFO Tom Donahue tells us, "Total revenue for the quarter was up about $4 million from the prior quarter due mainly to higher equity and fixed income assets, which combined to add about $20 million of revenue. This was partially offset by net money market minimum yield and other waivers and lower money market assets, which combined to reduce revenue by about $18 million."

He continues, "Recall that in Q2, we saw revenue growth from higher money market assets partially offset by lower revenue from equity assets. Our diversified business mix positioned us to grow revenues in varying market conditions against the backdrop of challenging times. Other factors impacting Q3 revenues, compared to the prior quarter included an additional day, which added $4.4 million and a decrease of $2.9 million in performance fees and carried interest.... The decrease in distribution expense compared to the prior quarter was due to the impact of minimum yield waivers and lower money market assets, which reduced distribution expense by about $18 million."

During the Q&A session, J.P. Morgan Analyst Ken Worthington asked, "Regulators and regulatory panels continue to kick around the idea of altering money market fund regulations again in response to the need for Fed programs to support funds post COVID. What are the fixes that are being most talked about? And could this round of rules either damage the outlook for prime money market funds? Or is it more likely that it actually helps the outlook for prime money market funds?"

Chris Donahue answers, "I believe that the thing that's being talked about the most is the restriction on that 30% trigger. The comments that were made to the SEC of not only requiring the 30% weekly liquidity level, but then requiring the public notice thereof, and then the consideration by the board of fees and gates acted exactly the way that was predicted. Namely, it caused more problems than it solved. And there are a lot of ways around that. If the SEC wants to keep the trigger, fine. You just don't have to do the things that wave a red flag in front of the marketplace."

He continues, "Ameliorating the impact of that 30% is the number one thing that's being discussed. At this point, in our view, the money market funds came through this situation much like they did before, with a lot of resilience. Therefore there is no need to further diminish prime funds, even though there are some who use them as trading mechanisms in order to preserve their non-SIFI status."

Donahue adds, "The reason for this is, if you take an honest look at stakeholders, including the issuers [like] colleges and municipalities, all of whom need great help, during COVID, and post COVID times, restricting their ability to get financing on the short end doesn't make a lot of sense. And you have the users, ... and then you have the other shareholders. We just don't think that it makes a lot of sense to eliminate the spear point of the short term markets at this time. So what will happen with regulation? I cannot predict, but I can assure you that we will be in there defending the beauty and efficacy of prime money market funds."

Worthington also comments, "You had pretty substantial outflows in money market funds this quarter, and pretty strong net sales into fixed income funds this quarter. To what extent is the money that's coming out of cash going into fixed income? And really the heart of the question is, 'To what extent can you cross-sell or cross-market cash management clients and really the intermediaries to kind of retain those dollars coming out of money market funds?'"

Donahue responds, "A truly lovely concept that doesn't work and I can't defend. If I could, I would. We have discovered over the many, many decades of being in the money fund business, that the money fund and cash determinations by clients are made on the basis of cash. But what happens is because you're there with the cash account, you can talk to them about the other beautiful options that you have. But to be able to exactly calculate and follow money moving from cash into fixed income we just have never been able to do. We have separate sales organizations who coordinate very closely. And I think a large part of the sales that we had in this quarter were related to the breadth and quality of the fixed income offerings that our clients were able to see. And so you can be sure that the salespeople on the fixed income and equity side use the money market fund as a door opener. It's just very difficult to trace the money."

In response to another question on fee waivers, Tom Donahue replies, "There's a whole lot of assumptions ... asset mix, client actions, and then you just mentioned the stimulus.... If you track our forecasts, surprisingly because of so many factors we've been pretty accurate. Basically, our team thinks that there's going to be a stimulus package, and the size and the timing matter. And as we run through so many factors, we came up with an estimate that was $9 million. I guess if the stimulus package doesn't happen we would run the numbers and get a couple million more in wavers."

Money Market CIO Debbie Cunningham comments on ESG integration, "I think probably the reason that we are the most fully integrated group within the three different sectors at Federated Hermes has to do with the fact that we abide by Rule 2a-7. Our money market funds ... are required to only deal with issuers that represent minimal credit risk [and are] high quality. So for the most part, we're dealing with the largest companies, the largest financial entities in the world, on a global basis. As such, even though there may be issues from a governance perspective, ... there may be environmental issues for the BPs and the Exxon's in the world, there may be social issues from some of the pharmaceutical companies that we're using, etc."

She continues, "But the fact of the matter is, they're the leaders in the industry, and we are engaging with them to move forward so that they can move those issues from an industry basis, in a positive direction. So that's kind of our modus operandi, if you will, within the sector, some of the incidental observations that we've noted from the COVID perspective have a lot to do with firm's adaptability. One of the issues that we have engaged with a very large, soft drink manufacturer has been their use of plastic, yet during COVID times back in March and April, they actually took several of their plastic manufacturing lines, their bottling lines, and turn them into PPE manufacturer. [There are] similar stories from say Walmart and some other retailers who repurpose their individuals and on a social basis did not necessarily lay those individuals off. So incidental observations have been good."

When asked if Q4 would see inflows into MMFs, Cunningham answers, "Sure, generally speaking, our liquidity products do see inflows at the end of the year. That may be mitigated to some degree by lower interest rates and by what was already a huge inflow in the second ... quarter. So already, a lot of that cash was in our products, and maybe different types of cash was included -- stimulus cash that's now being utilized for its original purpose, sort of flight to quality cash, etc."

Finally, she adds, "You'll see flight to quality if there's any kind of contested or questionable issues associated with the election. You'll probably see Treasuries go a little bit lower in that interim time period, repo go a little bit lower on a rate basis because of flows coming in. So demand exceeding supply at that point until we do get some stimulus in the marketplace. On the other side of the market, with the credit markets from a prime and muni standpoint, it's more than likely that you'll see a little bit of spread widening and some outflows if that would in fact be the case. But generally speaking, the fourth quarter is usually a strong one for positive flows."