News Archives: February, 2021

The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, as well as its monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for January 2021 yesterday. The first release shows money fund assets rising again, the 6th increase in the past 7 weeks. Money fund assets are up $47 billion, or 1.3%, year-to-date in 2021. Inst MMFs up $59 billion (2.6%), while Retail MMFs down $12 billion (-0.9%). Over the past 52 weeks, money fund assets have increased by $710 billion, or 20.2%, with Retail MMFs rising by $119 billion (8.9%) and Inst MMFs rising by $591 billion (27.2%).

ICI's "Assets" release says, "Total money market fund assets increased by $10.94 billion to $4.34 trillion for the week ended Wednesday, February 24.... Among taxable money market funds, government funds increased by $19.71 billion and prime funds decreased by $7.05 billion. Tax-exempt money market funds decreased by $1.73 trillion." ICI's stats show Institutional MMFs increasing $18.4 billion and Retail MMFs decreasing $7.5 billion. Total Government MMF assets, including Treasury funds, were $3.713 trillion (85.5% of all money funds), while Total Prime MMFs were $528.8 billion (12.2%). Tax Exempt MMFs totaled $101.9 billion (2.3%). (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than our asset series.)

It explains, "Assets of retail money market funds decreased by $7.47 billion to $1.51 trillion. Among retail funds, government money market fund assets decreased by $4.17 billion to $1.16 trillion, prime money market fund assets decreased by $2.33 billion to $261.92 billion, and tax-exempt fund assets decreased by $971 million to $90.61 billion." Retail assets account for just over a third of total assets, or 34.8%, and Government Retail assets make up 76.7% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $18.41 billion to $2.83 trillion. Among institutional funds, government money market fund assets increased by $23.89 billion to $2.55 trillion, prime money market fund assets decreased by $4.72 billion to $266.93 billion, and tax-exempt fund assets decreased by $757 million to $11.31 billion." Institutional assets accounted for 65.2% of all MMF assets, with Government Institutional assets making up 90.2% of all Institutional MMF totals.

Their monthly "Trends" report shows that money fund assets decreased $5.2 billion in January to $4.328 trillion. They decreased $10.0 billion in December, $12.0 billion in November, $47.6 billion in October, $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 Jan. 21, 2021, money fund assets have increased by a massive $714.2 billion, or 19.8%. (Month-to-date in February, MMF assets have increased by $41.3 billion through 2/25, according to our MFI Daily.)

ICI's release states, "The combined assets of the nation's mutual funds decreased by $61.54 billion, or 0.3 percent, to $23.83 trillion in January, 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 $74.26 billion in January, compared with an inflow of $61.38 billion in December ... Money market funds had an outflow of $5.29 billion in January, compared with an outflow of $9.91 billion in December. In January funds offered primarily to institutions had an outflow of $2.01 billion and funds offered primarily to individuals had an outflow of $3.28 billion."

Their latest statistics show that Taxable MMFs lost assets last month while Tax Exempt MMFs gained assets. Taxable MMFs decreased by $5.5 billion in January to $4.222 trillion. Tax-Exempt MMFs increased $208 million to $105.7 billion. Taxable MMF assets increased year-over-year by $744.6 trillion (21.4%), while Tax-Exempt funds fell by $30.4 billion over the past year (-22.3%). Bond fund assets increased by $74.3 billion in January (1.4%) to $5.281 trillion (they broke above the $5.0 trillion level in October); they've risen by $450.1 billion (9.3%) over the past year.

Money funds represent 18.2% of all mutual fund assets (up 0.1% from the previous month), while bond funds account for 22.2%, according to ICI. The total number of money market funds was 339, down one from the month prior and down from 364 a year ago. Taxable money funds numbered 264 funds, and tax-exempt money funds numbered 75 funds.

ICI's "Month-End Portfolio Holdings" confirms increases in Treasuries, CP, CD and Notes, and decreases in Repo, Agencies, and Other securities. Treasury holdings in Taxable money funds remain the largest composition segment (since surpassing Repo in April). Treasury holdings increased by $297 million, or 0.0%, to $2.256 trillion, or 53.4% of holdings. Treasury securities have increased by $1.301 trillion, or 136.4%, over the past 12 months. (See our February 10 News, "Feb. MF Port. Holdings: Treasuries Hit Record $2.57T; Repo Below $1T.")

Repurchase Agreements were in second place among composition segments; they decreased by $49.6 billion, or -4.9%, to $958.0 trillion, or 22.7% of holdings. Repo holdings have dropped $286.9 billion, or -23.0%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $13.5 billion, or -2.1%, to $616.2 billion, or 14.6% of holdings. Agency holdings have fallen by $101.8 billion, or -14.2%, over the past 12 months.

Certificates of Deposit (CDs) rose to fourth place; they increased by $48.0 billion, or 34.1%, to $188.9 billion (4.5% of assets). CDs held by money funds shrunk by $121.8 billion, or -39.2%, over 12 months. Commercial Paper fell to fifth place, up $14.5 billion, or 8.7%, to $182.5 billion (4.3% of assets). CP has decreased by $54.2 billion, or -22.9%, over one year. Other holdings decreased to $27.5 billion (0.7% of assets), while Notes (including Corporate and Bank) were up to $5.1 billion (0.1% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 41.557 million, while the Number of Funds was down one at 264. Over the past 12 months, the number of accounts rose by 3.860 million and the number of funds decreased by 20. The Average Maturity of Portfolios was 47 days, down one from December. Over the past 12 months, WAMs of Taxable money have increased by 14.

A press release, "Wells Fargo Enters Agreement with GTCR and Reverence Capital Partners to Sell Wells Fargo Asset Management," tells us, "Wells Fargo & Company (WFC) today announced that it has entered into a definitive agreement to sell Wells Fargo Asset Management to GTCR LLC and Reverence Capital Partners, L.P. This sale includes Wells Fargo Bank N.A.'s business of acting as trustee to its collective investment trusts and all related WFAM legal entities. Under the terms of the agreement, the purchase price is $2.1 billion. The transaction is expected to close in the second half of 2021, subject to customary closing conditions. As part of the transaction, Wells Fargo will own a 9.9% equity interest and will continue to serve as an important client and distribution partner."

It explains, "WFAM is a leading asset management firm with $603 billion in assets under management, 24 offices globally, and specialized investment teams supported by more than 450 investment professionals. WFAM and its investment teams provide a broad range of differentiated investment products and solutions to help its diverse range of clients meet their investment objectives."

Barry Sommers, CEO of Wells Fargo's Wealth & Investment Management division comments, "Operating as an independent firm as a portfolio company of GTCR and Reverence Capital will provide numerous benefits to WFAM's clients, employees, and strategic partners -- including Wells Fargo. At the same time, this transaction reflects Wells Fargo's strategy to focus on businesses that serve our core consumer and corporate clients, and will allow us to focus even more on growing our wealth and brokerage businesses."

The release continues, "GTCR and Reverence Capital are two respected private equity firms with deep experience investing in the asset management space. The two firms have successful track records of growing wealth and asset management businesses for the long term and will provide WFAM with the resources and expertise to deepen its innovative investment solutions. Upon closing of the transaction, the new, independent company will be rebranded."

Wells' release adds, "Nico Marais, WFAM's CEO since June 2019, will remain CEO; he and his leadership team will continue to oversee the business. Joseph A. Sullivan, former chairman and CEO of Legg Mason, will be appointed as executive chairman of the board of the new company following the closing of the transaction."

Marais states, "This transaction represents a significant milestone in the growth and evolution of our firm.... Through this new partnership, our business will be even better positioned to execute our strategy and provide our clients with innovative products and solutions to help them reach their investment goals."

Wells Fargo Asset Management is currently the 9th largest manager of money market funds with $202.8 billion (as of 1/31/21), according to Crane Data. Among the 27 Wells Fargo MMFs tracked, the largest include: Wells Fargo Govt MM Sel (WFFXX, $95.2B); Wells Fargo Govt MM Inst (GVIXX, $42.9B); Wells Fargo Trs Plus In (PISXX, $15.9B); Wells Fargo 100% Treas MM Inst (WOTXX, $12.3B); Wells Fargo Heritage Sel (WFJXX, $8.5B); Wells Fargo 100% Treas MM Svc (NWTXX, $5.2B); Wells Fargo Govt MM Adm (WGAXX; $4.5B); Wells Fargo MMF Prm (WMPXX; $4.5B); Wells Fargo Trs Plus Sel (WTLXX; $3.1B); and, Wells Fargo Govt MM Svc (NWGXX, $1.9B).

For more on money fund manager transactions, see these Crane Data News pieces: "Franklin, Legg Mason Deal Signals More Consolidation; More Liquidations" (2/20/20); "Sweeps Big Part of Morgan Stanley, E*Trade Purchase; Rates Flat Again" (2/25/20); "Oppenheimer Funds Now Invesco Oppenheimer; Dreyfus Keeping Name" (6/3/19); Invesco Buying OppenheimerFunds; DWS ESG, Northern's RAVI Advertise" (10/22/18); "BlackRock Taking Over BofA MMFs in One of Biggest Acquisitions Ever" (11/3/15); and "Merged BlackRock, BGI Form World's 3rd Largest Money Fund Manager" (12/2/09).

In other news, yesterday we featured the article, "JP Morgan Launches 'Empower' Share Class to Support Minority Banks and we included a listing of all "ESG" and "Social" money market funds. But readers informed us that Morgan Stanley also recently entered the "social" space. A Prospectus Supplement for the $9.9 billion Morgan Stanley Institutional Liquidity Funds Government Securities Portfolio (MUIXX) tells us, "The Adviser will generally seek to place purchase orders for the Fund with broker-dealers that are owned by minorities, women, disabled persons, veterans and members of other recognized diversity and inclusion groups and will place the majority of the aggregate dollar volume of the Fund's purchase orders for government agency securities obtained via auction or window through such broker-dealers, subject in each case to the Adviser's duty to seek best execution for the Fund's orders."

The Investment Company Institute (ICI) also recently published a few pieces related to ESG and diversity. These include: "New ICI and IDC Survey Results Provide Benchmark for Improving Diversity and Inclusion in Asset Management Industry" and "ICI Joins Financial Services Trade Associations in Supporting Sustainable Finance Principles."

J.P. Morgan Asset Management unveiled another offering in the "ESG and Social" money fund space, launching new "Empower" share classes to support minority banks and institutions. A press release entitled, "JPMorgan Chase Announces Initiatives to Support Minority-Owned and Diverse-Led Financial Institutions," tells us, "JPMorgan Chase today announced initiatives to further support Minority Depository Institutions (MDIs) and diverse-led Community Development Financial Institutions (CDFIs), as part of the firm's recently announced $30 billion commitment to advancing racial equity. MDIs and CDFIs provide vital financial services in communities that are often underserved. In order to provide this necessary funding to underrepresented communities, many MDIs and CDFIs need additional capital themselves."

It explains, "These new initiatives are focused on strengthening minority-owned and diverse-led financial institutions by providing additional access to capital, connections to institutional investors, specialty support for Black-led commercial projects and mentorship and training opportunities."

Under the heading, "A New Money Market Share Class for Distribution by MDIs and Diverse-Led CDFIs," the release says, "JPMorgan Chase has launched Empowering Change, a unique program supported by Google and in partnership with MDIs and diverse-led CDFIs to provide economic opportunity to underserved communities. The program is designed to allow MDIs and CDFIs to offer new investment products to their customers, boost their technological capabilities and develop new revenues through fund distribution."

It continues, "Google is anchoring the program's launch with an intent to invest $500 million in the Empower money market share class that will be initially distributed by diverse-led MDIs The Harbor Bank of Maryland, Liberty Bank and Trust, M&F Bank and Unity National Bank. This initiative builds on Google's partnership with Opportunity Finance Network to support CDFIs, and multiple racial equity commitments made in 2020."

The Empowering Change program includes: "A new Empower money market share class for distribution by MDIs and diverse-led CDFIs, offered across J.P. Morgan Asset Management's suite of money market funds, allowing institutional clients to support MDIs and diverse-led CDFIs and create a positive social impact; An annual donation of 12.5% of revenue received from the management fees on Empower share class assets to support community development; Access to the depth and breadth of J.P. Morgan Asset Management's resources, including the Morgan Money digital investment platform, sales and marketing and client service support; [and] Training, education and marketing resources for partner firms led by JPMorgan Chase."

Paula Stibbe, Head of Global Liquidity, Client at J.P. Morgan Asset Management, comments, "The Empowering Change program will create new economic opportunities for minority-owned and diverse-led financial institutions, enabling qualified firms to offer our money market funds, as well as gain access to advisory support, management training and talent development.... This will empower these firms to deliver ongoing positive change in their communities. At the same time, corporate investors can make their money matter by investing in the Empower share class, designed specifically to support their socio-economic goals."

"Google is committed to helping create sustainable equity and economic opportunity for all," says Juan Rajlin, Vice President & Treasurer at Google. "We know that racial equality is directly linked to economic opportunity and are proud to partner on the Empowering Change program, which will help create new business opportunities for minority institutions."

A "Fact Sheet" accompanying the release asks, "Why is a new share class the right approach for Asset Management to support MDIs/CDFIs?" It explains, "The concept of establishing service agreements with financial intermediaries is not new. However, proactively pursuing partnerships with MDIs to expand their existing capabilities and gaining meaningful access to institutional clients is brand new to us and our industry. JPMorgan is set to be first to market with this type of initiative."

It states, "Many corporations have worked with JPMorgan Chase to get introductions to CDFIs and MDIs in order to support these organizations directly, however they're running into a few issues: MDIs have already taken on multiples of their deposit base in the wake of George Floyd's death and the subsequent civil unrest; ... The MDIs/CDFIs in consideration tend to be smaller in size than what most corporate investment policies allow; [and] Tier 1 equity is the most compelling to these MDIs, but that is typically a nonstarter for balance sheet cash."

Finally, JPM adds, "By investing in the Empower share class, institutional clients will be supporting MDIs and CDFIs who will receive payment related to the service of their investment, creating a positive social impact. The Institutional client will be investing in a vehicle they're already comfortable with, receive the same return on those investments, be an off-balance sheet solution, and offer a recurring revenue stream to MDIs and CDFIs to enhance their efforts in supporting the minority communities they serve."

Crane Data currently tracks 15 Social, ESG or Veteran MMFs with $33.2 billion (as of 1/31/21). Social or "Impact" MMFs (all Govt MMFs) total $18.5 billion and include: Federated Hermes Govt Ob Tax-M IS (GOTXX, $7,3B), Dreyfus Govt Sec Cash Instit (DIPXX, $4.4B), Goldman Sachs FS Fed Instr Inst (FIRXX, $3.6B) and Northern Instit Govt Select Williams Cap (WCGXX, $3.1B). Veteran-Affiliated MMF Share Classes total $5.5B and include: Goldman Sachs FS Govt Drexel Hamilton (VETXX, $2.2B), JPMorgan 100% US Trs MM Academy (JACXX, $1M), JPMorgan Prime MM Academy (JPAXX, $911M), JPMorgan US Govt MM Academy (JGAXX, $2.3B) and JPMorgan US Trs Plus MM Academy (JPCXX, $1M); ESG MMFs (All Prime) total $9.3B and include: BlackRock LEAF Direct (LEDXX, 1.3B), BlackRock Wealth LEAF Inv (PINXX, $2.4B), DWS ESG Liquidity Inst (ESGXX, $335M), Morgan Stanley Inst Liq ESG MMP I (MPUXX, $3.7B), State Street ESG Liq Res Prem (ELRXX, $1.1B) and UBS Select ESG Prime Inst Fund (SGIXX, $431M). (Several other funds are pending, including: HSBC ESG Prime, BlackRock's Mischler shares and Invesco's Cavu shares.)

For more on ESG and Social MMFs, see our February Money Fund Intelligence article, "Covid Changing Cash; Social, ESG MMFs Making Impact," and these Crane Data News pieces: "ESG and Social MMF Update: Mischler News, Green Deposits, Reg Debate" (12/4/20); "Academy Launches Treasury MMFs" (10/22/20); "Goldman Launches Social Class; Tiedemann Adds FICA; CS Green ABCP" (1/24/20); "Mischler Financial Joins "Impact" or Social Money Market Investing Wave" (12/5/19); and "Dreyfus Launches "Impact" or Diversity Government Money Market Fund" (11/21/19).

Even more minor money market funds are falling by the wayside both in the U.S. and Europe. A Prospectus Supplement filing for BBH U.S Government Money Market Fund says the manager will merge its $78 million "`Regular Shares" (BBMXX) into its $3.8 billion "Institutional Shares" (BBSXX). Regarding the "Conversion and Re-Designation of Regular Shares to Institutional Shares and Closure of Regular Share Class," they state, "The BBH Trust's Board of Trustee's has approved a one-time conversion of the BBH U.S. Government Money Market Fund's Regular Share Class to the Fund's Institutional Share Class to occur on February 26, 2021. On the Effective Date, the Fund's Regular Share Class will be converted, re-designated and renamed 'Institutional Share Class.'" (For more on liquidations, see our Feb. 18 Crane Data News, "SunAmerica Liquidating AIG Govt MMF" and additional hotlinks at the end of the article.)

BBH, the 35th largest MMF manager (of 65), explains, "The Board has also approved a waiver of the Fund's Institutional Share Class investment minimum for existing Regular Share Class shareholders as of the date of the supplement. Following the Effective Date, the rights, privileges or expenses of existing shareholders of Fund's Regular Share Class will be the same as the rights, privileges or expenses of shareholders of the Institutional Share Class. Additionally, as of the close of business on the Effective Date, the Fund's Regular Share Class shares will no longer be offered and all references to the Regular Share Class are removed from the Prospectus."

The filing adds on the "Closure of the BBH U.S. Government Money Market Fund Regular Share Class to Investments," "Effective close of business on February 18, 2021, the Fund's Regular Share Class is closed to investments; however, the Regular Share Class's closure to investments does not restrict any shareholders from redeeming shares. The Fund's ability to enforce the closure of the Regular Share Class to purchases with respect to certain retirement plan accounts and accounts held by financial intermediaries may vary depending on systems capabilities, applicable contractual and legal restrictions and cooperation of those retirement plans and intermediaries."

Northern Trust Asset Management also will hold a shareholder meeting on the merger of its Northern Trust Money Market Fund into its U.S. Government MMF. (See our Dec. 15, 2020 News, "Northern Drops Other Prime Shoe, Exits Muni Too.") The notice says, "You are cordially invited to attend a Special Meeting of Shareholders of the Money Market Fund, a series of Northern Funds, to be held on March 31, 2021 at 9:00 A.M. (Chicago time). In light of the public health concerns regarding the coronavirus (COVID-19) pandemic, the meeting will be held in a virtual format only. Shareholders will not be able to attend the meeting in person. At this important meeting, you will be asked to approve a Plan of Reorganization that provides for the reorganization of the Money Market Fund, a series of the Trust, into the U.S. Government Money Market Fund, also a series of the Trust. If approved by shareholders of the Acquired Fund, the reorganization is expected to be completed on or about April 9, 2021."

It tells us, "NTI believes that the shareholders of the Acquired Fund may benefit from the larger, combined assets of one combined fund, a lower risk profile and a better opportunity for future growth by combining the Acquired Fund's assets with the Acquiring Fund. The Acquiring Fund is a government money market fund with better commercial viability than the Acquired Fund, which is a prime money market fund, with a higher risk profile than the Acquiring Fund and minimal growth prospects in the current low interest rate environment. The reorganization is also expected to benefit NTI and its affiliate, The Northern Trust Company, by creating efficiencies from the operation of only the Acquiring Fund after the reorganization.... NTI also considered the future prospects of the Acquired Fund if the reorganization is not effected, including the possibility that the Acquired Fund might be liquidated. After considering NTI's recommendation, the Board concluded that the reorganization would be in the best interests of the Acquired Fund and the Acquiring Fund and their respective shareholders and that their respective shareholders' interests would not be diluted as a result of the reorganization."

In other MMF liquidation news, JPMorgan liquidated its JPM GBP Gilt CNAV Fund, a European-domiciled fund. A release entitled, "Fitch Withdraws JPMorgan GBP Gilt CNAV Fund's Money Market Fund Rating on Fund Liquidation," reads, "Fitch Ratings has withdrawn JPMorgan Liquidity Funds - GBP Gilt CNAV Fund's 'AAAmmf' rating. Fitch has withdrawn the fund's rating as it was liquidated on 16 February 2021, and the agency will no longer provide ratings or analytical coverage."

As when Euro money market fund yields went negative years ago, we expect to see an exodus from lower-yielding Government GBP (Pound Sterling) MMFs. Our latest MFI International (with data as of Jan. 31) shows that assets in European or "offshore" government money market mutual funds are still very low. Our Euro Govt Index includes 6 funds holding assets of E104 million, while our GBP Govt Index includes 12 funds holding L8.5 billion. The offshore USD Govt Index is also small, featuring just 7 funds with assets of $8.4 billion.

One of the factors driving these exits is of course the near-zero yield environment. Money market fund yields continue to bottom out just above zero. Our flagship Crane 100 remained unchanged again in the last week at 0.02%. The Crane 100 Money Fund Index fell below the 1.0% level almost a year ago in mid-March, and below the 0.5% level in late March. (See our March 4, 2020 News, "Surprise Fed Cut to Push Yields Below 1.0 Percent.") Average yields remain at the rock-bottom levels they started 2021 with, and are down from 1.46% at the start of 2020 and down from 2.23% at the beginning of 2019. Three-quarters of all money funds and just over half of MMF assets have since landed on the zero yield floor (0.00 or 0.01%), though some continue to show some yield.

According to our Money Fund Intelligence Daily, as of Friday, 2/19, 644 funds (out of 855 total) yield 0.00% or 0.01% with assets of $2.465 trillion, or 51.9% of the total $4.749 trillion. There are 200 funds yielding between 0.02% and 0.10%, totaling $2.075 trillion, or 43.7% of assets; 11 funds yielded between 0.11% and 0.20% with $209.3 billion, or 4.4% of assets. No funds yield over 0.19%.

The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 678), shows a 7-day yield of 0.02%, unchanged in the week through Friday, 2/19. The Crane Money Fund Average is down 45 bps from 0.47% at the beginning of April. Prime Inst MFs were unchanged at 0.04% in the latest week, Government Inst MFs were flat at 0.02%, and Treasury Inst MFs were unchanged at 0.01%. Treasury Retail MFs currently yield 0.01%, (unchanged in the last week), Government Retail MFs also yield 0.01% (unchanged in the last week), and Prime Retail MFs yield 0.02% (unchanged). Tax-exempt MF 7-day yields were also unchanged at 0.01%. (Let us know if you'd like to see our latest MFI Daily.)

The latest Brokerage Sweep Intelligence, with data as of February 19, showed no changes in the last week. All major brokerages, with the exception of RW Baird, offer rates of 0.01% for balances of $100K. No brokerage sweep rates or money fund yields have gone negative to date, but this could become a distinct possibility in coming weeks or months. Crane's Brokerage Sweep Index has been flat for the last 44 weeks at 0.01% (for balances of $100K). Ameriprise, E*Trade, Fidelity, Merrill Lynch, Morgan Stanley, Raymond James, Schwab, TD Ameritrade, UBS and Wells Fargo all currently have rates of 0.01% for balances at the $100K tier level (and almost every other tier too). RW Baird offers a rate of 0.02% for its balances of $100K.

One year ago, we covered the first brokerage merger of 2020 in our Feb. 25, 2020 News, "Sweeps Big Part of Morgan Stanley, E*Trade Purchase; Rates Flat Again." Morgan Stanley announced the close of the acquisition in an early October press release, writing, "Morgan Stanley... announced today that it has completed the acquisition of E*TRADE Financial Corporation (E*TRADE) in an all-stock transaction."

Schwab also announced the firm's acquisition of TD Ameritrade in October 2020. Their press release, "Schwab Completes Acquisition of TD Ameritrade," writes that the merger "[c]reates company with approximately $6 trillion in client assets across 28 million brokerage accounts." The integration is estimated to take place over the coming 18 to 36 months, and no word on the integration of their banks or sweep assets.

Late last week, staffers from both the U.S. Securities & Exchange Commission and the Federal Reserve Bank of New York published papers on the repurchase agreement market. The SEC's piece was a primer entitled, "Money Market Funds and the Repo Market," which was written by Viktoria Baklanova, Isaax Kuznits and Trevor Tatum. They explain, "This primer discusses the use of repurchase agreements (repos) by money market funds (MMFs) and provides a quantitative view of key repo metrics using data from the U.S. Securities and Exchange Commission (SEC) and the Federal Reserve. The metrics cover historical trends in repo assets and liabilities, repo holdings by MMFs, counterparty types, settlement arrangements, collateral securities, and margining practices." We quote from both briefs below.

The SEC update says, "Repos allow one firm to sell a security to another firm with a simultaneous promise to buy the security back at a later date, often the next day, at a specified price. The difference between the sale and repurchase price of the security reflects the implied interest rate. The economic effect of this transaction is similar to that of a collateralized loan. The cash investor in a repo receives securities as collateral to protect her against the risk that the counterparty is unable to repurchase the securities at the agreed date. The market value of collateral typically exceeds the amount of cash invested in a repo by an agreed-upon margin.... The repo market also offers institutional investors such as asset managers, MMFs, and corporations with undeployed cash balances an option to invest cash on a secured basis."

It tells us, "The Federal Reserve estimates the total repo assets (or investments in repos) at around $4.6 trillion as of September 30, 2020. Securities dealers are also the largest investors in the repo market, accounting for close to 28% of the total repo assets as of September 30, 2020, below the 20-year average of nearly 40%. Securities dealers' function as market intermediaries may explain their large shares of both repo assets and repo liabilities. Dealers exchange cash and securities in the repo market on behalf of their clients and to support their own market activity.... Money market funds (MMFs) participate in the repo market by investing cash in repos alongside other types of firms.... As of September 30, 2020, the Financial Accounts of the United States show that MMFs accounted for close to 22% of the total repo assets. MMFs do not incur repo liabilities."

The Primer continues, "The role of MMFs as cash investors in repos has increased over the last 20 years. One reason for the increase is the growth of assets under management in government MMFs, which are required to invest at least 99.5% of their assets in cash, U.S. government securities, or repos collateralized by cash and government securities. Given the investment restrictions, government MMFs usually invest a somewhat larger share of their assets in repos than prime MMFs. For example, as of December 31, 2020, government MMFs allocated over 23% of their assets to repos, while prime MMFs allocated close to 21% of their assets to repos."

It states, "Assets in government MMFs more than doubled in 2016 following implementation of the 2014 MMF reforms and increased considerably once again in the first half of 2020, when demand for government assets surged amidst the COVID-19 pandemic. In March 2020, net assets of government MMFs increased by $838 billion to $3.6 trillion, or up 30% from the end of February. Government MMFs' net assets reached nearly $4.0 trillion at the end of April.... MMFs' investments in repos reached an all-time high of nearly $1.6 trillion at the end of March, when inflows into government MMFs accelerated."

The SEC's piece adds, "Around 70% of MMF repos by volume are either overnight or have open terms and can be terminated at any time. Around 24% of MMF repos have maturities longer than one day but less than seven days, and the remaining 6% of MMF repos feature various other maturity terms. Most MMF repo investments are executed through a third party that provides settlement and collateral management services and are often referred to as triparty repos. In contrast, in a bilateral repo, each counterparty is responsible for the clearing and settlement of the trade, which makes the repo trading more operationally demanding."

In a section on "MMF repo counterparties," it says, "As of December 31, 2020, MMFs' total investments in repos were close to $1.1 trillion. MMFs conduct the great majority of their repo investments with securities dealers, and primary dealers in particular. Non-dealer counterparties include insurance companies, educational institutions, government-sponsored enterprises (GSEs), and the Federal Reserve. Some MMF repos are centrally cleared and novated to the Fixed Income Clearing Corporation (FICC). We review MMF repo investments with each of these counterparty types."

The Primer tells us, "MMFs accept a broad range of securities with varying maturities as repo collateral. Historically, government securities have accounted for the great majority of MMF repo collateral. As of December 31, 2020, around 64% of MMF repo investments were collateralized by Treasury securities and around 31% were collateralized by government agency securities, including mortgage-back securities (MBS).... Under 5% of MMF repos were collateralized by other types of securities, including corporate bonds, equities, and asset-backed securities. Among all MMF types, prime MMFs are the main investors in repos backed by nongovernment securities."

Finally, it says, "In a typical repo trade, the market value of the collateral exceeds the principal amount of the repo by a certain margin required by a cash investor. The overcollateralization is intended to protect the cash investor from the risk that the value of collateral may decline over the life of the transaction and become insufficient to recover the principal and interest should the counterparty default. Historically, MMFs have required counterparties to provide a margin that depends mainly on the quality of the collateral. For example, the required margin of Treasury securities collateral is typically 2% of the repo principal for a total collateral value of 102% of the repo principal (with the exception of trades with the Federal Reserve's RRP, which are not overcollateralized)."

The other paper, posted on the New York Fed's "Liberty Street Economics" blog, is titled, "How Competitive are U.S. Treasury Repo Markets?" It says, "The Treasury repo market is at the center of the U.S. financial system, serving as a source of secured funding as well as providing liquidity for Treasuries in the secondary market. Recently, results published by the Bank for International Settlements (BIS) raised concerns that the repo market may be dominated by as few as four banks. In this post, we show that the secured funding portion of the repo market is competitive by demonstrating that trading is not concentrated overall and explaining how the pricing of inter-dealer repo trades is available to a wide range of market participants. By extension, rate-indexes based on repo trades, such as SOFR, reflect a deep market with a broad set of participants."

The piece explains, "A common use of the repurchase agreement (repo) is as a secured-funding transaction between two financial institutions. Indeed, market participants use repos to borrow more than a trillion dollars against Treasury securities each day to finance their activities. As with most financial markets that trade over-the-counter (OTC), repo transactions can be roughly categorized into two groups: Trades between a broker-dealer and its client, and trades between two broker-dealers. In the United States there are two inter-dealer venues, the GCF Repo and the Fixed Income Clearing Corporation's (FICC's) DVP markets, both of which are centrally cleared through FICC, a financial utility. In contrast, the dealer-to-client market is more decentralized."

It tells us, "We begin by considering both segments of inter-dealer repo, FICC DVP and GCF Repo, together, because of their economic similarity and the ability of dealers to operate in both markets. When we combine trades from both venues for 2020, the resulting concentration measures show that large players do not dominate the inter-dealer market. The top five largest cash-lenders and cash-borrowers account for 44.2 and 40.2 percent of total activity, respectively. Furthermore, the largest ten participants on the cash-lenders and cash-borrowers side account for only 63.6 and 56.7 percent of total activity. These results demonstrate that a broad set of participants are active in the inter-dealer market."

The blog comments, "The results discussed above stand in stark contrast to the recent and well-publicized BIS report which reported that four banks dominate lending in the repo market. The difference lies in the set of participants studied; the BIS report focused on depository institutions whereas this work focuses on all participants. Because depository institutions are not the dominant source of cash in the broader repo market, the different conclusions about concentration between this post and the BIS report are not surprising."

It concludes, "The overnight secured funding portion of the Treasury repo market is not concentrated, but rather reflects trading by a broad group of participants. In addition, pricing transparency helps ensure that Treasury repo is competitive. These are both attractive features for a market which is central to the U.S. financial system. Furthermore, the concentration statistics imply that rate-indexes based upon Treasury repo, such as SOFR, reflect activity across a range of participants."

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $35.4 billion in January to $4.817 trillion. (Month-to-date in February through 2/17, assets have increased by $24.3 billion according to our MFI Daily.) The SEC shows that Prime MMFs rose by $36.4 billion in January to $949.9 billion, Govt & Treasury funds fell by $2.0 billion to $3.752 trillion and Tax Exempt funds increased $1.0 billion to $114.8 billion. Yields were flat or lower in January. 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.

January's overall asset increase follows a decrease of $26.1 billion in December, an increase of $18.7 billion in November and declines of $73.6 billion in October, $117.8 billion in September, $57.0 billion in August, $66.4 billion in July and $127.3 billion in June. Prior to this, we saw increases of $31.0 billion in May, $461.6 billion in April and $704.8 billion in March. Over the 12 months through 1/31/21, total MMF assets have increased by a stunning $800.5 billion, or 19.9%, 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 $4.817 trillion in assets, $949.9 billion was in Prime funds, up $36.4 billion in January. This follows decreases of $42.7 billion in December, $5.8 billion in November, $30.7 billion in October, $145.6 billion in September (when Vanguard converted its massive Prime MMF to Govt) and $7.1 billion in August. Earlier this year, we saw 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. Prime funds represented 19.7% of total assets at the end of January. They've decreased by $173.3 billion, or -15.4%, over the past 12 months.

Government & Treasury funds totaled $3.752 trillion, or 77.9% of assets. They decreased $2.0 billion in January, after increasing $19.2 billion in December, $27.7 billion in November, and decreasing $41.4 billion in October, 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. Govt & Treasury MMFs are up a staggering $1.001 trillion over 12 months, or 36.4%. Tax Exempt Funds increased $1.0 billion to $114.8 billion, or 2.4% of all assets. The number of money funds was 341 in January, down three from the previous month, and down 26 funds from a year earlier.

Yields for Taxable MMFs were flat or down in January. Steady declines over the past 22 months follow 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on January 31 was 0.15%, down a basis point the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.20%, down a basis point. Gross yields were 0.12% for Government Funds, down two basis points from last month. Gross yields for Treasury Funds were down a basis point at 0.12%. Gross Yields for Muni Institutional MMFs dropped seven basis points to 0.07% in January. Gross Yields for Muni Retail funds were down four basis points at 0.14% in January.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.10%, down a basis point from the previous month and down the same amount since 12/31/20. The Average Net Yield for Prime Retail Funds was 0.03%, unchanged from the previous month, and also unchanged since 12/31/20. 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 down four basis points from December at 0.02%. Net Yields for Muni Retail funds were unchanged at 0.01% in December. (Note: These averages are asset-weighted.)

WALs and WAMs were down in all categories except Prime Institutional in January. The average Weighted Average Life, or WAL, was 62.4 days (up 4.9 days from last month) for Prime Institutional funds, and 48.8 days for Prime Retail funds (down 2.7 days). Government fund WALs averaged 99.8 days (down 3.0 days) while Treasury fund WALs averaged 97.4 days (down 3.8 days). Muni Institutional fund WALs were 14.9 days (down 1.7 days from the previous month), and Muni Retail MMF WALs averaged 26.9 days (down 0.7 days).

The Weighted Average Maturity, or WAM, was 44.7 days (up 4.0 days from the previous month) for Prime Institutional funds, 42.5 days (down 1.8 days from the previous month) for Prime Retail funds, 47.4 days (down 0.7 days) for Government funds, and 48.1 days (down 2.4 days) for Treasury funds. Muni Inst WAMs were down 1.4 days to 14.3 days, while Muni Retail WAMs decreased 0.8 days to 25.4 days.

Total Daily Liquid Assets for Prime Institutional funds were 51.6% in January (down 3.2% from the previous month), and DLA for Prime Retail funds was 34.1% (down 1.9% from previous month) as a percent of total assets. The average DLA was 65.5% for Govt MMFs and 93.7% for Treasury MMFs. Total Weekly Liquid Assets was 65.0% (down 2.3% from the previous month) for Prime Institutional MMFs, and 46.2% (up 0.7% from the previous month) for Prime Retail funds. Average WLA was 80.0% for Govt MMFs and 97.8% for Treasury MMFs.

In the SEC's "Prime Holdings of Bank-Related Securities by Country table for January 2021," the largest entries included: Canada with $117.2 billion, France with $85.8 billion, Japan with $71.3 billion, the U.S. with $70.5B, Germany with $42.0B, the Netherlands with 37.8B, the U.K. with $30.6B, Aust/NZ with $24.2B and Switzerland with $16.7B. The biggest gainers among the "Prime MMF Holdings by Country" were: The Netherlands (up $24.9 billion), France (up $18.8B), Germany (up $18.2B) and the U.K. (up $4.5B). The biggest decreases were: Canda (down $13.0B), Japan (down $10.7B), the U.S. (down $10.6B), Aust/NZ (down $1.6B) and Switzerland (down $0.5B).

The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows Europe had $107.1B (up $40.4B from last month), the Eurozone subset had $178.4B (up $70.1B). The Americas had $188.1 billion (down $23.6B), while Asia Pacific had $108.4B (down $10.7B).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $950.0B billion in Prime MMF Portfolios as of January 31, $347.3B (36.6%) was in Government & Treasury securities (direct and repo) (down from $418.8B), $238.7B (25.1%) was in CDs and Time Deposits (up from $164.9B), $179.9B (18.9%) was in Financial Company CP (up from $153.1B), $137.6B (14.5%) was held in Non-Financial CP and Other securities (up from $127.3B), and $46.5B (4.9%) was in ABCP (up from $46.1B).

The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $162.4 billion, Canada with $135.3 billion, France with $193.6 billion, the U.K. with $84.3 billion, Germany with $15.5 billion, Japan with $136.6 billion and Other with $37.2 billion. All MMF Repo with the Federal Reserve was down $4.3 billion in January at $5.4 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.8%, Prime Retail MMFs with 2.8%, Muni Inst MMFs with 1.4%, Muni Retail MMFs with 3.2%, Govt MMFs with 14.9% and Treasury MMFs with 15.5%.

SunAmerica is the latest asset manager to exit the money market fund space, bringing the total of U.S. MMF managers down to 64. A Prospectus Supplement for its AIG Government Money Market Fund explains, "SunAmerica Asset Management, LLC, the Fund's investment adviser, and Touchstone Advisors, Inc. announced that they have entered into a definitive agreement for Touchstone to acquire certain assets related to SunAmerica's retail mutual fund management business. Under the terms of the agreement, twelve AIG Funds are expected to be reorganized into existing or newly created series of trusts in the Touchstone fund complex. Certain AIG Funds not covered by the agreement, including the Fund, will be liquidated."

It continues, "On February 8, 2021, the Board of Directors of SunAmerica Money Market Funds, Inc., on behalf of the Fund, approved a proposal to close the Fund to new and subsequent investments and thereafter to liquidate and dissolve the Fund pursuant to a Plan of Liquidation. Under the Plan of Liquidation, the Fund is expected to be liquidated on or about July 16, 2021. The Fund intends to convert all of its portfolio securities to cash or cash equivalents in preparation for the liquidation. Accordingly, the Fund is expected to deviate from its investment objective and investment strategies until it is liquidated on the Liquidation Date."

A press release, "Touchstone Investments Announces Purchase Agreement to Acquire Select Retail Mutual Fund Business Assets from AIG Life & Retirement," explains, "Touchstone Investments and AIG Life & Retirement, a division of American International Group, Inc. (AIG), announced ... that Touchstone Investments, a wholly owned subsidiary of Western & Southern Financial Group, has agreed to acquire select assets of AIG Life & Retirement's Retail Mutual Funds business."

It continues, "AIG's Retail Mutual Funds business manages $7.8 billion in assets across 18 mutual funds as of Dec. 31, 2020. Under the terms of the purchase agreement, 12 of those funds -- with approximately $7.5 billion in assets -- will be reorganized and merged into either existing Touchstone funds or into newly created Touchstone funds. After the reorganizations, the funds will be advised by Touchstone Advisors, Inc." The deal does not involved the AIG money market fund. For more on recent liquidations, see these Crane Data News pieces: "BlackRock Liquidates Ready Assets" (2/11/21); "Delaware Liquidates Govt Cash Mgmt" (1/11/21); "DWS Liquidating Govt CR (BIRXX)" (11/25/20); "BMO Liquidating Inst Prime MMF" (11/17/20); and "Morgan Stanley NY Muni MM Gone" (10/5/20).)

In other news, ICI released its latest monthly "Money Market Fund Holdings" summary, 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 February 10 News, "Feb. MF Port. Holdings: Treasuries Hit Record $2.57T; Repo Below $1T.")

The MMF Holdings release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in January, prime money market funds held 30.6 percent of their portfolios in daily liquid assets and 44.0 percent in weekly liquid assets, while government money market funds held 71.5 percent of their portfolios in daily liquid assets and 80.7 percent in weekly liquid assets." Prime DLA was down from 34.4% in December, and Prime WLA decreased from 46.8%. Govt MMFs' DLA decreased from 74.6% in December and Govt WLA decreased from 84.1% from the previous month.

ICI explains, "At the end of January, prime funds had a weighted average maturity (WAM) of 46 days and a weighted average life (WAL) of 61 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 48 days and a WAL of 100 days." Prime WAMs were up two days from the previous month, while WALs were up three from the previous month. Govt WAMs were down one day while WALs were down three days from December.

Regarding Holdings By Region of Issuer, the release tells us, "Prime money market funds' holdings attributable to the Americas declined from $290.24 billion in December to $234.66 billion in January. Government money market funds' holdings attributable to the Americas declined from $3,283.99 billion in December to $3,240.21 billion in January."

The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $234.7 billion, or 43.3%; Asia and Pacific at $85.6 billion, or 15.8%; Europe at $215.5 billion, or 39.8%; and, Other (including Supranational) at $6.3 billion, or 1.2%. The Government Money Market Funds by Region of Issuer table shows Americas at $3.240 trillion, or 87.7%; Asia and Pacific at $129.3 billion, or 3.5%; Europe at $308.3 billion, 8.3%, and Other (Including Supranational) at $15.4 billion, or 0.4%."

Crane Data also published its latest Weekly Money Fund Portfolio Holdings statistics Wednesday (a day late due to the President's Day Holiday), which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Feb. 12, 2021) includes Holdings information from 68 money funds (down 10 funds from two weeks ago), which represent $1.947 trillion (down from $2.312 trillion) of the $4.757 trillion (40.9%) in total money fund assets tracked by Crane Data. (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 $1.042 trillion (down from $1.275 trillion two weeks ago), or 53.5%, Repurchase Agreements (Repo) totaling $464.8 billion (down from $556.5 billion two weeks ago), or 23.9% and Government Agency securities totaling $251.0 billion (down from $281.7 billion), or 12.9%. Commercial Paper (CP) totaled $68.4 billion (down from $70.5 billion), or 3.5%. Certificates of Deposit (CDs) totaled $49.6 billion (down from $55.0 billion), or 2.5%. The Other category accounted for $50.0 billion or 2.6%, while VRDNs accounted for $21.3 billion, or 1.1%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.047 trillion (53.8% of total holdings), Federal Home Loan Bank with $129.8B (6.7%), BNP Paribas with $63.5B (3.3%), RBC with $51.0B (2.6%), Federal Farm Credit Bank with $47.4B (2.4%), Federal National Mortgage Association with $42.8B (2.2%), Fixed Income Clearing Corp with $37.1B (1.9%), Mitsubishi UFJ Financial Group Inc with $31.2B (1.6%), Federal Home Mortgage Corp with $28.9B (1.5%) and JP Morgan with $28.7B (1.5%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($196.4 billion), Goldman Sachs FS Govt ($162.1B), Wells Fargo Govt MM ($146.5B), Fidelity Inv MM: Govt Port ($133.5B), Morgan Stanley Inst Liq Govt ($115.6B), Dreyfus Govt Cash Mgmt ($96.2B), JPMorgan 100% US Treas MMkt ($93.2B), Goldman Sachs FS Treas Instruments ($80.7B), First American Govt Oblg ($77.9B) and JPMorgan Prime MM ($75.3B). (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.)

Last week, Fitch Ratings hosted a webinar on "Assessing Future MMF Regulatory Scenarios," which reviewed the recent President's Working Group Report on Financial Markets report and discussed potential regulatory reforms for money market funds. BlackRock's Tom Callahan explains, "Our experience, and I think this was another contributing factor to the amplified volatility, was that there was a fair degree of confusion amongst certain types of investors as to what these [previous MMF] reforms really meant. We were fielding an enormous amount of calls as there started to be some NAV volatility in FNAV funds. That's what the 'F' stands for ... it's floating, so these NAVs are supposed to go up and down. But when they went below par for the first time, there was a lot of confusion from some clients.... So we had to do a lot of education about what a money fund was in the post-2014 reform world, because I think a lot of people were sort of anchored to the old CNAV world and were alarmed when they saw NAVs starting to move around."

He continues, "I would say there was also confusion around the implementation of gates and fees, and what that rule really meant. Everyone was watching ... what the weekly liquid assets were doing across various funds. As they were pulled down towards the 30% threshold, that became a significant accelerant for outflows. Now, of course, the rules don't require gates and fees if a fund goes below 30%, and in fact, if you look across the industry, a ... provider did temporarily dip below that number. What the rule actually requires is a board meeting, but I don't think that that was widely understood either. I think the general sense was that if a fund goes below 30%, that it's some sort of 'trapdoor' effect, and that gates and fees are imminent. I think that anxiety led to the outsized reaction that we saw in terms of many prime funds in the course of a week or two seeing 30% outflows, 40% outflows."

Callahan comments, "The number one issue that needs to be addressed, in our view, is a market structure issue. The commercial paper markets, in times of market stress, freeze. And we saw that certainly in March. There was no bid for commercial paper, regardless of credit, regardless of tenure. The market just shut. As long as that is the dynamic, regulators can do whatever they like to prime funds in terms of changes, modifications, enhancement all the way to potentially banning the product. But if this issue of unstable market structure is not addressed, then in the next crisis, regulators will be forced to come right back in and bail out the CP markets because the same patterns will repeat."

He tells the webinar, "I think one of the issues that plagues credit markets broadly is lack of standardization and fragmentation. Are there ways that we could work as an industry to better standardize the issuance of CP to make [the market] inherently larger and more liquid? I think there's things that can be done there. But this issue of a bank's ability to hold CP is something that needs to be looked at because ... in times of market stress, the last thing banks want to be doing is congesting their balance sheet with a lot of low margin commercial paper. It's just not of great value to them. So, it is worth debating if making CP easier for banks to hold by classifying the highest quality CP as HQLA would make sense. Ideas like that would make it easier for banks to fill that role that they're supposed to be fulfilling, which is acting as an intermediary in times of market stress."

Asked about the Fed's emergency facilities in March, Callahan responds, "They were absolutely essential. You have to give global regulators, particularly the Fed and the SEC, you have to give them an A+, not only for the actions that they took, but the speed at which they reacted. Now, I suppose it was helpful that there were a number of these programs that were essentially on the shelf from the GFC. But I will tell you, we were having weekend conversations, late night conversations. Regulators were in touch literally minute by minute as things were progressing during that very difficult week of March 15th. They understood the severity. They understood the trajectory. I mean, you just can't have any product sustain 30, 40% outflows against a closed secondary market. That can't go on forever. They knew that, and they acted forcefully and they acted, most importantly, very, very quickly. I think we have to give our regulators immense, immense kudos and credit."

Callahan states, "An absolutely essential question, one that we get asked quite a bit by regulators, is, 'I thought we fixed this thing. Why are we having to come back again and bail out money funds?' I think you do have to admit that the reforms, as significant as they were both in Europe in '19 and the U.S. in '10 and '14, were clearly insufficient to make funds self-sustaining through times of acute market stress -- what they were intended to do. I think all of us in the industry need to step back and look at those regulations and try to figure out what worked and what didn't, and to propose common sense solutions to make them more resilient, so we don't rely on a market structure that once a decade or so requires sovereign support."

He adds, "At BlackRock, we've certainly tried to make a number of those suggestions. We've put out some publications on the topic, and talked about some of the things I've already referenced here today. We also talked an awful lot about micro changes to prime funds, changes that we think can help make them more resilient."

Then, Callahan says, "Now pivoting to the second question about the President's Working Group, there were 10 suggestions there. We thought a lot of them were really constructive, helpful and practical. Some were a little bit confusing, and then there were others that we would put in the category of solutions that are not practical, that are not workable and would be de facto bans on the product, either because they're not operationally feasible, they're too expensive, or they're just features that clients would never accept. We think if the intention is to ban prime money funds, then ban prime money funds. Don't put a series of highly complex, unworkable, complicated solutions that kind of get you to that same place."

He explains, "The first suggestion in the President's Working Group letter, and the one we thought was the most constructive, is this idea of decoupling a board's ability to implement gates and fees in a prime fund. You need to detach that from any specific metric, as the rule exists right now ... that rule is 30%. So, at 30.01% the fund is fine, at 29.99%, all of a sudden, you're having emergency board meetings and it creates essentially a trapdoor affect that I think more than anything, incited the anxiety, borderline panic maybe even, of certain investors to get out of prime funds. There was this sense, if I don't get out before we get below 30%, then my money is going to be trapped or gated in some capacity."

Callahan says, "A board would have the ability to implement gates and fees in a fund at a time of their discretion. Remember, a board acts as a fiduciary in the best interest of their shareholders. They're not going to implement gates and fees for no good reason. They're going to do it only when they view it as being in the best interest of protecting shareholders of the fund. But let's not tie that to a specific metric because that essentially ... incentivizes the very behavior that everyone is trying to discourage, which is this instinct that clients need to rush from these funds at a time of market crisis. That is a recommendation we support, and we've written about."

He adds, "The second recommendation is a close cousin, which is: should you make these liquidity requirements countercyclical? We had an effective example of how this works in action from the OCC and how they modified liquidity requirements in STIFs during that same period in March 2020. Now, the binding constraint in STIFs is not a weekly liquid asset, it's the weighted average life. They actually allowed their regulated vehicles to extend their average life. I think the rule was 120 days and they extended to, I think 160 or 165. So, essentially countercyclical adjusting liquidity requirements to reflect the market that you're in.... If you're not allowed to use a liquidity buffer, it doesn't matter what it is. You could take from 30% to 50%, you can make it 90% -- if you're never really allowed to use it, it's not doing you any good. So, this whole idea of making that more flexible and reflective of liquidity and systemic issues that are happening, those are two suggestions that we support and think are spot on."

Callahan also tells the Fitch event, "All of these measures are going to make funds more liquid, more secure. But there's also likely to be a yield penalty. Obviously, we're in probably the most acute period, certainly in my career, of lack of supply, tight spreads, flat curves, and severely low yields. The spread between government funds and prime funds is already historically compressed.... So that's why, back to my point, I think we need to be mindful [that] certain of these measures will potentially just make these products uncompetitive. If you put a prime fund on top of a government fund, for example, in an extreme situation because of some of these measures, no one's going to buy them. That's a pretty good way to make sure prime funds pose no systemic risk, if there's no assets in them. We don't really want to head down that road. There is a balance of making sure that they're secure and stable."

Finally, he states, "I can't tell you exactly how many basis points of spread between prime and govie funds is the right balance, but I do think it is important to keep in mind as we look at all of these measures. What is sort of the cost versus the benefit? At BlackRock, we believe that if some of the measures we've written about in our Viewpoints are implemented, that prime funds do have a role and they can be strengthened and made resilient so that in times of market stress, they're not requiring sovereign support. We think those answers are out there, but it is not just something as simple as tweaking a liquidity level. It's got to be a comprehensive solution, looking at the ecosystem, looking at the structure of the CP market and looking at the structure of money funds. You take all of that together and that's where you'll find your answer. To the degree regulators play a role in bringing investors, issuers, all the different sort of representatives of this market ecosystem together, and bring great ideas to the fore, I think they will make tremendous progress."

Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds moved sharply lower over the last month to $1.010 trillion, following big gains in 2020. These U.S.-style funds, domiciled in Ireland or Luxembourg and denominated in US Dollars, Pound Sterling and Euros, decreased by $55.9 billion over the last 30 days (through 2/11); they're down $49.5 billion (-4.7%) year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January 2020, are down $17.9 billion over the last 30 days and are down $12.7 billion YTD to $523.0 billion. Euro funds are down E15.3 billion over the past month, and YTD they're down E19.0 billion to E138.3 billion. GBP money funds have fallen by L15.1 billion over 30 days, and are down by L10.9 billion YTD to L245.7B. U.S. Dollar (USD) money funds (191) account for half (50.6%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 16.5% and Pound Sterling (GBP) funds (117) total 29.4%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers Friday), below.

Offshore USD MMFs yield 0.04% (7-Day) on average (as of 02/11/21), down from 1.59% on 12/31/19 and 2.29% at the end of 2018. EUR MMFs yield -0.66% on average, compared to -0.59% at year-end 2019 and -0.49% on 12/31/18. Meanwhile, GBP MMFs yielded 0.00%, 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 January MFII Portfolio Holdings, with data as of 01/31/21, show that European-domiciled US Dollar MMFs, on average, consist of 23.9% in Commercial Paper (CP), 15.6% in Certificates of Deposit (CDs), 13.4% in Repo, 32.9% in Treasury securities, 13.0% in Other securities (primarily Time Deposits) and 1.1% in Government Agency securities. USD funds have on average 30.0% of their portfolios maturing Overnight, 6.7% maturing in 2-7 Days, 16.8% maturing in 8-30 Days, 14.5% maturing in 31-60 Days, 11.5% maturing in 61-90 Days, 16.1% maturing in 91-180 Days and 4.4% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (41.1%), France (12.9%), Canada (7.5%), Japan (7.1%), Sweden (6.0%), the Netherlands (4.3%), Germany (4.2%), the U.K. (3.4%), Belgium (2.7%) and Australia (2.0%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $185.3 billion (32.9% of total assets), BNP Paribas with $19.6B (3.5%), Fixed Income Clearing Corp with $15.5B (2.8%), Credit Agricole with $14.1B (2.5%), Mizuho Corporate Bank Ltd with $12.1B (2.2%), Mitsubishi UFJ Financial Group Inc with $11.2B (2.0%), RBC with $11.1B (2.0%), Toronto-Dominion Bank with $10.5B (1.9%), KBC Group NV with $10.4B (1.9%) and JP Morgan with $10.4B (1.9%).

Euro MMFs tracked by Crane Data contain, on average 40.5% in CP, 20.3% in CDs, 21.2% in Other (primarily Time Deposits), 11.7% in Repo, 5.9% in Treasuries and 0.4% in Agency securities. EUR funds have on average 28.0% of their portfolios maturing Overnight, 7.8% maturing in 2-7 Days, 17.9% maturing in 8-30 Days, 15.1% maturing in 31-60 Days, 11.9% maturing in 61-90 Days, 16.2% maturing in 91-180 Days and 3.0% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (36.6%), Japan (12.3%), the U.S. (9.2%), Sweden (6.5%), Germany (5.3%), Switzerland (4.9%), Belgium (4.6%), Canada (3.2%), the U.K. (2.9%) and the Supranational (2.6%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E8.8B (6.7%), BNP Paribas with E7.3B (5.6%), BPCE SA with E7.3B (5.6%), Republic of France with E5.9B (4.5%), Zürcher Kantonalbank with E4.9B (3.7%), Credit Mutuel with E4.5B (3.4%), Societe Generale with E4.4B (3.4%), Mizuho Corporate Bank Ltd with E4.4B (3.4%), Svenska Handelsbanken with E4.3B (3.3%) and Citi with E4.2B (3.2%).

The GBP funds tracked by MFI International contain, on average (as of 01/31/21): 37.2% in CDs, 20.9% in CP, 18.6% in Other (Time Deposits), 21.0% in Repo, 2.2% in Treasury and 0.1% in Agency. Sterling funds have on average 35.3% of their portfolios maturing Overnight, 8.7% maturing in 2-7 Days, 12.2% maturing in 8-30 Days, 12.0% maturing in 31-60 Days, 12.1% maturing in 61-90 Days, 13.8% maturing in 91-180 Days and 5.9% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (21.8%), the U.K. (18.5%), Japan (14.3%), Canada (10.1%), the U.S. (5.7%), Sweden (4.4%), Switzerland (4.0%), the Netherlands (3.2%), Australia (3.0%), and Germany (2.8%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L17.0B (8.0%), BNP Paribas with L10.6B (5.0%), Mizuho Corporate Bank Ltd with L10.1B (4.8%), RBC with L8.8B (4.1%), Agence Central de Organismes de Securite Sociale with L8.5B (4.0%), Barclays PLC with L8.3B (3.9%), Sumitomo Mitsui Banking Corp with L8.0B (3.8%), Credit Agricole with L8.0B (3.8%), Standard Chartered Bank with L7.4B (3.5%) and BPCE SA with L7.0B (3.3%).

The February issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "Launches in Ultra-Short Space Indicate Sector Heating Up," which reviews new product launches from Federated Hermes and Vanguard; and a "Q&A With J.P. Morgan AM's Harveer Bhalla," which highlights the "Ultra-Short segment from our recent Money Fund University. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund yields were mostly lower and returns were mixed in January. We excerpt from the new issue below. (Contact us if you'd like to see our Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data.)

BFI's "Launches in Ultra-Short Space" piece reads, "Two of the fastest-growing segments of the bond fund marketplace -- the 'Conservative' Ultra-Short segment and the Ultra-Short ETF segment -- saw new product launches in the past month. Federated Hermes is the latest firm to enter the 'Conservative' Ultra-Short Bond Fund space, while Vanguard announced a new Ultra-Short ETF product for clients. Given investors are stuck looking for yield in another prolonged period of low rates, it's likely more firms will join them."

The piece says, "A press release entitled, 'Federated Hermes, Inc. Launches Two New Microshort Funds ,' explains, 'Federated Hermes, Inc ... a global leader in active, responsible investing, today announced the launch of Federated Hermes Conservative Microshort Fund and Federated Hermes Conservative Municipal Microshort Fund. The actively managed funds offer an innovative approach to liquidity management by pursuing higher yields than money market strategies while simultaneously aiming to maintain lower NAV volatility by investing in securities with shorter maturities than traditional ultrashort products.'"

Our Q&A w/JPMAM's Bhalla article explains, "Last month we hosted our 'basic training' event, Money Fund University, which featured a brief segment on 'Ultra-Shorts'. The piece features a discussion with J.P. Morgan Asset Management Portfolio Manager Harveer Bhalla, which comments on ultra-shorts and JPM's Managed Reserves group, what he's buying and not buying, and the future of ESG in the space."

BFI says, "Give us a little history." Bhalla responds, "I interned with ... [and] I've been working with the Managed Reserves team ever since. To give you an idea of where we sit, you have money market funds at the front end of the curve, then you have the ultra-short space, which is where our Managed Reserves team sits. Then you have the short duration and the core and more long duration type strategies further out the curve."

He continues, "In terms of ultra-short, we exist in that more conservative ultra-short bond fund type strategy -- we straddle money funds and short duration product. What we're doing is we're buying a lot of the similar products that money funds are buying -- CDs, CP, government bills and so forth. But we're also buying corporate bonds, some other asset backed securities. So, we have a broader set of investment opportunities, and we can take on a little bit more risk, both with ratings and with maturity."

Bhalla adds, "This space has grown dramatically in the last few years. I think our team gives a pretty good idea for the whole ultra-short space, in that we have doubled our AUM over the last few years. It now sits at roughly $110 billion."

Our first BFI News brief, "Returns Mixed, Yields Down in January," explains, "Bond fund yields were mostly lower and returns were mixed last month. Our BFI Total Index returned 0.09% over 1-month and 4.09% over 12 months. The BFI 100 fell 0.09% in Jan. and rose 4.69% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.06% over 1-mo and 1.17% over 1-yr; Ultra-Shorts averaged 0.17% in Jan. and 1.36% over 12 mos. Short-Term returned 0.20% and 3.46%, and Intm-Term returned -0.23% last month and 5.32% over 1-year. BFI's Long-Term Index returned -0.77% in Jan. and 6.55% over 1-year. Our High Yield Index gained 0.52% in Jan. and 4.90% over 1-yr."

Another News brief quotes The WSJ's, piece, "The Risks and Rewards of Diversifying Your Bond Funds." They tell us, "[I]nvestors might want to consider adding to their fixed-income portfolios some bond funds that can offer higher yields than U.S. bond index funds and offer varying degrees of protection from the risk of rising rates."

In a third News update, Investor's Business Daily writes, "Best ETFs And Mutual Funds Begin 2021 With A Whimper." They comment, "On the fixed income side, municipal bond funds stood out as the best mutual funds in the space. Riskier bond funds also did better than government bond funds as long-term rates rose. High yield muni debt funds soared 1.71%. They're up 5.8% in the past three months."

Finally, BFI also features the sidebar, "SSGA Searching for Yield." It says, "SSGA's recent 'Investment Outlook,' entitled, 'Searching for Yield in a Sea of Low Rates,' explains, 'In 2020, coordinated central bank efforts -- including quantitative easing (QE) and purchase programs aimed at supporting credit market liquidity -- played a major role in stabilizing and improving the trajectory of fixed income markets. Broad core aggregate bonds returned 7.5% and below-investment-grade corporate credit rallied 33% from the market's bottom to finish up 7% on the year -- pushing the coupon on high-yield bonds to an all-time low of 4.22% to end the year.'"

On a related note, please join us for Crane's Bond Fund Symposium 2021 (Online), which will be hosted virtually the afternoons of March 25-26, 2021. Bond Fund Symposium offers a concentrated and affordable educational experience for bond fund and fixed-income professionals with a focus on the ultra-short sector of the market. Registrations are $250 and "comp" and sponsor tickets are also available. (Ask us if you'd like more information.)

See the latest agenda and details here. Portfolio managers, analysts, investors, issuers, service providers, and anyone interested in expanding their knowledge of bond funds and fixed-income investing will benefit from our comprehensive program. E-mail us for the brochure and more details. Also, mark your calendars for our "big show," Money Fund Symposium, which is scheduled for June 23-25, 2021 in Philadelphia, and for our European Money Fund Symposium, which is scheduled for October 21-22, 2021 in Paris. We hope to see you in person later this year, and we hope to see you virtually in March!

BNY Mellon took steps to streamline its asset management subsidiaries and focus each on particular asset classes, and moved to consolidated its cash under its Dreyfus unit. A press release entitled, "BNY Mellon Investment Management to Enhance the Specialist Investment Capabilities of Insight, Newton and Dreyfus Cash Investment Strategies," explains, "BNY Mellon Investment Management ... and four of its investment firms today announced plans to realign Mellon Investments Corporation's capabilities in fixed income, equities and multi-asset, and liquidity management with Insight Investment, Newton Investment Management and Dreyfus Cash Investment Strategies, respectively."

It continues, "The decision, made in partnership with the investment firms, will enhance their respective specialist capabilities, and strengthen their research platforms and global reach. The transition of Mellon's capabilities is expected to be completed by the third quarter of 2021, subject to regulatory approvals. There will be no change to the firms' investment processes or philosophies during the transition period as a result of the changes announced today."

Hanneke Smits, CEO of BNY Mellon Investment Management comments, "In the face of a rapidly changing investment environment, well-resourced specialist expertise with global research capabilities are needed to deliver the outcome-focused solutions clients expect.... The realignment of Mellon's investment capabilities with Insight, Newton and Dreyfus CIS is part of our commitment to providing our clients with a range of investment strategies that meet their current and evolving objectives."

The release explains, "The transition of Mellon's fixed income investment teams will enable Insight to solidify its position as a leading global fixed income solutions and liability-driven investment (LDI) manager with $1.1 trillion in AUM. Mellon's $105.2 billion in fixed income capabilities across stable value, municipal, efficient beta and taxable fixed income strategies are highly complementary to Insight's investment expertise. The investment processes share considerable common ground and the combined team will have enhanced collective coverage of the U.S., the world's largest and most diverse fixed income market."

It also says, "Mellon's deep experience in managing institutional cash for its separately managed account clients complements Dreyfus CIS' existing suite of money market mutual funds, UCITS funds and collective investment vehicles. The integration of investment teams is designed to provide a holistic offering for our clients."

Stephanie Pierce, CEO of ETF, Index and Cash Investment Strategies at BNY Mellon Investment Management, tells us, "This combination will provide clients with consolidated access to industry-leading liquidity solutions, backed by nearly 50 years of expertise and leadership across the entire cash ecosystem.... This is one of several enhancements to better serve the evolving needs of our clients with a comprehensive, scalable and flexible suite of liquidity solutions."

Finally, BNY Mellon adds, "The integration of Mellon's cash capabilities with Dreyfus CIS will offer clients a comprehensive platform of institutional liquidity solutions with over $300 billion in AUM across investment vehicles.... As a result of the plans to realign Mellon's investment capabilities, Des Mac Intyre, Mellon's current CEO, has decided to leave the firm at the end of February 2021." (For more, see our Nov. 19, 2020 Crane Data News, "Dreyfus Consolidates Money Funds, Sticks w/Prime; OFR Annual Report.")

In other news, Wells Fargo Asset Management's latest monthly "Portfolio Manager Commentary"" states, "Money markets had settled into well-defined trading ranges in the second half of 2020, but the veneer of stability cracked for the first time as they slipped to lower yields in late January, led by the repo market. The Secured Overnight Financing Rate (SOFR), the Federal Reserve's most comprehensive repo market index, averaged between 0.082% and 0.087% each month from August to December 2020. In January, it averaged 0.071%, and more ominously in the last half of January the average was 0.052%."

They tell us, "Because the repo market is as transparent as mud, it's hard to say exactly what caused the move and whether it will stick. What we can say is that as reserves grow -- both through the Fed's ongoing $120-billion-per-month quantitative easing securities purchases as well as the U.S. Treasury spending down its cash balance at the Fed -- there will be ever more cash looking for a home. However, we also know that reserves have a welcoming home at the Fed, where they earn 0.10% -- the Interest on Excess Reserves (IOER) rate the Fed pays -- in unlimited size, and nothing that can be invested there should be placed elsewhere at lower rates. Given that, and since reserves were little changed in January, all we can say for sure right now is that cash unrelated to banking reserves likely drove repo rates lower. Treasury bill yields followed repos lower, tightening by 1 to 2 basis points (bps; 100 bps equal 1.00%). Their near-term fate will be tied to the repo market as well."

On the "Prime sector," Wells comments, "January is a notoriously slow month in the prime money market space. Many issuers get squared away on funding before the end of the year, with much of that issuance maturing farther into the new year. Consequently, issuers aren't actively seeking term funding. At the same time, investors who built up liquidity for possible year-end cash needs are now searching for investments once the calendar turns. While we often see this type of supply/demand imbalance push rates lower in January, couple that this year with a decreasing yield environment and pressure on repo rates to find that rates available in the marketplace are restrained, to say the least.... With the fall in repo levels exacerbating the decline in very short maturity paper, the yields on time deposits and short commercial paper have fallen in lockstep with the repo decline."

Crane Data released its February Money Fund Portfolio Holdings Tuesday, and our most recent collection, with data as of Jan. 31, 2021, shows a huge jump in Treasuries, increases in TDs, CP and CDs, and big declines in Repo and Agencies. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $133.7 billion to $4.757 trillion in January, after decreasing $88.0 billion in December and increasing $86.6 billion in November. 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, or contact us to request our latest Portfolio Holdings reports.)

Among taxable money funds, Treasury securities jumped $126.3 billion (5.2%) to a record $2.575 trillion, or 54.1% of holdings, after increasing $8.1 billion in December and $19.0 billion in November. Repurchase Agreements (repo) decreased by $67.7 billion (-6.4%) to $992.7 billion, or 20.9% of holdings, after decreasing $15.8 billion in December and increasing $92.0 billion in November. Government Agency Debt decreased by $32.3 billion (-4.8%) to $640.1 billion, or 13.5% of holdings, after decreasing $13.8 billion in December and $30.2 billion in November. Repo, Treasuries and Agencies totaled $4.207 trillion, representing a massive 88.5% of all taxable holdings.

Money funds' holdings of CP, CD, Other (mainly Time Deposits) all saw assets increase in January while VRDNs experienced a decrease. Commercial Paper (CP) increased $36.2 billion (16.3%) to $258.6 billion, or 5.4% of holdings, after decreasing $8.3 billion in December and increasing $8.5 billion in November. Certificates of Deposit (CDs) rose by $15.8 billion (12.6%) to $141.3 billion, or 3.0% of taxable assets, after decreasing $10.9 billion in December and $11.4 billion in November. Other holdings, primarily Time Deposits, increased $57.8 billion (76.4%) to $133.4 billion, or 2.8% of holdings, after decreasing $46.7 billion in December and increasing $9.4 billion in November. VRDNs decreased to $16.2 billion, or 0.3% of assets. (Note: This total is VRDNs for taxable funds only. We will post our Tax Exempt MMF holdings separately late Wednesday.)

Prime money fund assets tracked by Crane Data increased $41.0 billion to $938.0 billion, or 19.7% of taxable money funds' $4.757 trillion total. Among Prime money funds, CDs represent 15.1% (up from 14.0% a month ago), while Commercial Paper accounted for 27.5% (up from 24.8%). The CP totals are comprised of: Financial Company CP, which makes up 19.0% of total holdings, Asset-Backed CP, which accounts for 4.9%, and Non-Financial Company CP, which makes up 3.6%. Prime funds also hold 4.7% in US Govt Agency Debt, 24.9% in US Treasury Debt, 2.5% in US Treasury Repo, 0.5% in Other Instruments, 10.3% in Non-Negotiable Time Deposits, 6.2% in Other Repo, 4.1% in US Government Agency Repo and 0.8% in VRDNs.

Government money fund portfolios totaled $2.642 trillion (55.5% of all MMF assets), up $84.0 billion from $2.558 trillion in December, while Treasury money fund assets totaled another $1.177 trillion (24.7%), up from $1.168 trillion the prior month. Government money fund portfolios were made up of 22.6% US Govt Agency Debt, 13.2% US Government Agency Repo, 51.7% US Treasury Debt, 12.2% in US Treasury Repo, 0.2% in VRDNs, 0.1% in Other Instruments and 0.1% in Investment Company . Treasury money funds were comprised of 82.9% US Treasury Debt and 17.1% in US Treasury Repo. Government and Treasury funds combined now total $3.819 trillion, or 80.3% of all taxable money fund assets.

European-affiliated holdings (including repo) increased by $139.3 billion in January to $651.6 billion; their share of holdings rose to 13.7% from last month's 11.1%. Eurozone-affiliated holdings rose to $446.2 billion from last month's $355.9 billion; they account for 9.4% of overall taxable money fund holdings. Asia & Pacific related holdings increased to $226.2 billion (4.8% of the total) from last month's $225.8 billion. Americas related holdings fell $7.0 billion to $3.876 trillion and now represent 81.5% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (down $71.3 million, or -11.5%, to $547.9 billion, or 11.5% of assets); US Government Agency Repurchase Agreements (up $1.6 billion, or 0.4%, to $386.2 billion, or 8.1% of total holdings), and Other Repurchase Agreements (up $2.1 billion, or 3.7%, from last month to $58.6 billion, or 1.2% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $27.9 billion to $178.5 billion, or 3.8% of assets), Asset Backed Commercial Paper (up $700 million to $46.1 billion, or 1.0%), and Non-Financial Company Commercial Paper (up $7.6 billion to $34.0 billion, or 0.7%).

The 20 largest Issuers to taxable money market funds as of Jan. 31, 2021, include: the US Treasury ($2,574.6 billion, or 54.1%), Federal Home Loan Bank ($379.3B, 8.0%), BNP Paribas ($126.9B, 2.7%), Fixed Income Clearing Co ($110.8B, 2.3%), RBC ($107.3B, 2.3%), Federal Farm Credit Bank ($99.4B, 2.1%), Federal National Mortgage Association ($96.0B, 2.0%), JP Morgan ($71.7B, 1.5%), Mitsubishi UFJ Financial Group Inc ($65.6B, 1.4%), Barclays ($64.6B, 1.4%), Federal Home Loan Mortgage Co ($62.8B, 1.3%), Credit Agricole ($61.2B, 1.3%), Bank of America ($50.0B, 1.1%), Societe Generale ($47.9B, 1.0%), Citi ($47.0B, 1.0%), Sumitomo Mitsui Banking Co ($41.8B, 0.9%), Toronto-Dominion Bank ($37.2B, 0.8%), Bank of Montreal ($35.9B, 0.8%), Nomura ($33.2B, 0.7%) and Canadian Imperial Bank of Commerce ($31.5B, 0.7%).

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 ($116.4B, 11.7%), Fixed Income Clearing Corp ($110.8B, 11.2%), RBC ($78.9B, 7.9%), JP Morgan ($59.7B, 6.0%), Barclays ($52.2B, 5.3%), Mitsubishi UFJ Financial Group Inc ($47.7B, 4.8%), Bank of America ($47.6B, 4.8%), Credit Agricole ($45.7B, 4.6%), Citi ($39.7B, 4.0%) and Societe Generale ($33.8B, 3.4%).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($28.4B, 6.0%), Toronto-Dominion Bank ($22.3B, 4.7%), Mizuho Corporate Bank Ltd ($18.5B, 3.9%), Mitsubishi UFJ Financial Group Inc ($17.9B, 3.8%), Bank of Montreal ($15.7B, 3.3%), Credit Agricole ($15.5B, 3.3%), DNB ASA ($15.2B, 3.2%), Svenska Handelsbanken ($15.0B, 3.2%), Sumitomo Mitsui Banking Corp ($14.1B, 3.0%) and Societe Generale ($14.0B, 3.0%).

The 10 largest CD issuers include: Bank of Montreal ($13.6B, 9.6%), Sumitomo Mitsui Banking Corp ($11.3B, 8.0%), Mitsubishi UFJ Financial Group Inc ($10.2B, 7.2%), Toronto-Dominion Bank ($8.9B, 6.3%), Mizuho Corporate Bank Ltd ($7.6B, 5.4%), Canadian Imperial Bank of Commerce ($7.4B, 5.3%), Landesbank Baden-Wurttemberg ($6.5B, 4.6%), Nordea Bank ($6.1B, 4.3%), RBC ($5.6B, 4.0%) and Credit Suisse ($5.5B, 3.9%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Societe Generale ($13.2B, 5.7%), RBC ($12.7B, 5.5%), JP Morgan $12.0B, 5.2%), Toronto-Dominion Bank ($11.5B, 5.0%), NRW.Bank ($9.0B, 3.9%), BNP Paribas ($7.3B, 3.2%), Sumitomo Mitsui Trust Bank ($7.0B, 3.1%), Svenska Handelsbanken ($6.7B, 2.9%), Credit Suisse ($6.6B, 2.9%) and DNB ASA ($6.3B, 2.7%).

The largest increases among Issuers include: the US Treasury (up $126.3B to $2,574.6B), Credit Agricole (up $19.1B to $61.2B), Bank of America (up $8.0B to $50.0B), Barclays (up $7.7B to $64.6B), Societe Generale (up $6.6B to $47.9B), ABN Amro Bank (up $6.4B to $17.5B), Svenska Handelsbanken (up $5.0B to $15.0B), ING Bank (up $4.6B to $20.8B), NRW.Bank (up $3.8B to $10.7B) and Natixis (up $3.6B to $26.7B).

The largest decreases among Issuers of money market securities (including Repo) in January were shown by: Fixed Income Clearing Corp (down $62.6B to $110.8B), Federal Home Loan Bank (down $22.3B to $379.3B), RBC (down $10.7B to $107.3B), JP Morgan (down $10.6B to $71.7B), Goldman Sachs (down $10.2B to $21.8B), Sumitomo Mitsui Banking Corp (down $5.0B to $41.8B), Federal National Mortgage Association (down $4.8B to $96.0B), Bank of Montreal (down $4.8B to $35.9B), Canadian Imperial Bank of Commerce (down $4.7B to $31.5B) and Federal Home Loan Mortgage Corp (down $3.6B to $62.8B).

The United States remained the largest segment of country-affiliations; it represents 76.2% of holdings, or $3.625 trillion. France (6.0%, $287.4B) was number two, and Canada (5.3%, $250.8B) was third. Japan (4.5%, $213.7B) occupied fourth place. The United Kingdom (2.4%, $114.7B) remained in fifth place. The Netherlands (1.2%, $59.1B) was in sixth place, followed by Germany (1.2%, $58.0B), Sweden (1.0%, $45.4B), Australia (0.6%, $28.3B) and Switzerland (0.6%, $26.3B). (Note: Crane Data attributes Treasury and Government repo to the dealer's parent country of origin, though money funds themselves "look-through" and consider these U.S. government securities. All money market securities must be U.S. dollar-denominated.)

As of Jan. 31, 2021, Taxable money funds held 29.0% (down from 35.2%) of their assets in securities maturing Overnight, and another 11.9% maturing in 2-7 days (up from 9.9% last month). Thus, 40.8% in total matures in 1-7 days. Another 14.4% matures in 8-30 days, while 15.4% matures in 31-60 days. Note that close to three-quarters, or 70.7% of securities, mature in 60 days or less (up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 10.1% of taxable securities, while 16.4% matures in 91-180 days, and just 2.8% matures beyond 181 days.

The SEC recently released its quarterly "Private Funds Statistics" report, which summarizes Form PF reporting and includes some data on "Liquidity Funds." The publication shows overall Liquidity fund assets were up in the latest reported quarter (Q2'20) to $600 billion (up from $585 billion in Q1'20). The SEC's "Introduction" tells us, "This report provides a summary of recent private fund industry statistics and trends, reflecting data collected through Form PF and Form ADV filings. Form PF information provided in this report is aggregated, rounded, and/or masked to avoid potential disclosure of proprietary information of individual Form PF filers. This report reflects data from Third Calendar Quarter 2018 through Second Calendar Quarter 2020 as reported by Form PF filers." Note: Crane Data believes many of these liquidity funds are securities lending reinvestment pools and other short-term investment funds.

The tables in the SEC's "Private Funds Statistics: Second Calendar Quarter 2020," with the most recent data available, show 112 Liquidity Funds (including "Section 3 Liquidity Funds," which are Liquidity Funds from advisers with over $1 billion total in cash),up seven from the last quarter and down four from a year ago. (There are 67 Liquidity Funds and 45 Section 3 Liquidity Funds.) The SEC receives Form PF reports from 37 Liquidity Fund advisers and 22 Section 3 Liquidity Fund advisers, or 59 advisers in total, up two from last quarter (down two from a year ago).

The SEC's table on "Aggregate Private Fund Net Asset Value" shows total Liquidity Fund assets at $600 billion, up $15 billion from Q1'20 and up $20 billion from a year ago (Q2'19). Of this total, $302 billion is in normal Liquidity Funds while $298 billion is in Section 3 (large manager) Liquidity Funds. The SEC's table on "Aggregate Private Fund Gross Asset Value" shows total Liquidity Fund assets at $611 billion, up $17 billion from Q1'20 and up $27 billion from a year ago (Q2'19). Of this total, $307 billion is in normal Liquidity Funds while $304 billion is in Section 3 (large manager) Liquidity Funds.

A table on "Beneficial Ownership for Section 3 Liquidity Funds" shows $57 billion is held by Private Funds (19.0%), $59 billion is held by Unknown Non-U.S. Investors (19.9%), $92 billion is held by Other (30.7%), $17 billion is held by SEC-Registered Investment Companies (5.7%), $11 billion is held by Insurance Companies (3.7%) and $3 billion is held by Non-U.S. Individuals (0.9%).

The tables also show that 73.2% of Section 3 Liquidity Funds have a liquidation period of one day, $280 billion of these funds may suspend redemptions, and $251 billion of these funds may have gates (out of a total of $531 billion). WAMs average a short 32 days (41 days when weighted by assets), WALs are 54 days (60 days when asset-weighted), and 7-Day Gross Yields average 0.30% (0.30% asset-weighted). Daily Liquid Assets average about 52% (40% asset-weighted) while Weekly Liquid Assets average about 60% (56% asset-weighted). Overall, these portfolios appear shorter with a much heavier Treasury exposure than money market funds in general; almost half of them (48.9%) are fully compliant with Rule 2a-7.

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 January 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 Jan. 31, 2021 includes holdings information from 1,073 money funds (up two from last month), representing assets of $4.827 trillion (up from $4.786 billion). Prime MMFs now total $950.1 billion, or 19.5% of the total. 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 $2.488 trillion (up from $2.470 trillion), or a massive 51.5% of all holdings. Repurchase Agreement (Repo) holdings in money market funds totaled $1.005 trillion (down from $1.069 trillion), or 20.8% of all assets, and Government Agency securities totaled $665.4 billion (down from $688.1 billion), or 13.8%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.158 trillion, or a stunning 86.1% of all holdings.

Commercial paper (CP) totals $267.4 billion (up from $231.6 billion), or 5.5% of all holdings, and the Other category (primarily Time Deposits) totals $174.9 billion (up from $116.2 billion), or 3.6%. Certificates of Deposit (CDs) total $141.8 billion (up from $126.0 billion), 2.9%, and VRDNs account for $84.7 billion (down from $85.3 billion last month), or 1.8% of money fund securities.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $179.9 billion, or 3.7%, in Financial Company Commercial Paper; $45.9 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 ($565.1B, or 11.7%), U.S. Govt Agency Repo ($380.8B, or 7.9%) and Other Repo ($58.6B, or 1.2%).

The N-MFP Holdings summary for the 207 Prime Money Market Funds shows: CP holdings of $262.1 billion (up from $226.2 billion), or 27.6%; Treasury holdings of $240.7 billion (up from $232.0 billion), or 25.3%; CD holdings of $141.8 billion (up from $126.0 billion), or 14.9%; Other (primarily Time Deposits) holdings of $131.1 billion (up from $72.1 billion), or 13.8%; Repo holdings of $120.7 billion (down from $188.0 billion), or 12.7%; Government Agency holdings of $44.5 billion (down from $55.3 billion), or 4.7% and VRDN holdings of $9.2 billion (down from $10.5 billion), or 1.0%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $179.9 billion (up from $153.1 billion), or 18.9%, in Financial Company Commercial Paper; $45.9 billion (down from $45.4 billion), or 4.8%, in Asset Backed Commercial Paper; and $36.3 billion (up from $27.6 billion), or 3.8%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($24.3 billion, or 2.6%), U.S. Govt Agency Repo ($37.9 billion, or 4.0%), and Other Repo ($58.6 billion, or 6.2%).

Crane Data's latest Money Fund Market Share rankings show assets were relatively flat overall and mixed again among the largest U.S. money fund complexes in January. Money market fund assets increased $5.6 billion, or 0.01%, last month to $4.727 trillion. Assets have fallen by $14.1 billion, or -0.3%, over the past 3 months, but they've increased by $770.5 billion, or 19.4%, over the past 12 months through Jan. 31, 2021. The biggest increases among the 25 largest managers last month were seen by Dreyfus, Morgan Stanley, JP Morgan, Invesco and SSGA, which grew assets by $12.4 billion, $10.8B, $9.3B, $6.0B and $4.1B, respectively. The largest declines in assets in January were seen by BlackRock, Goldman Sachs, DWS, Federated Hermes and Schwab, which decreased by $11.9 billion, $11.6B, $10.0B, $9.2B and $4.5B, 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 January.

Over the past year through Jan. 31, 2021, Morgan Stanley (up $95.2B, or 71.8%), Fidelity (up $93.3B, or 11.5%), BlackRock (up $89.8B, or 25.9%), Vanguard (up $82.1B, or 19.7%), Goldman Sachs (up $69.9B, or 29.4%), Wells Fargo (up $68.4B, or 52.4%) and JP Morgan (up $61.1B, or 17.2%) were the largest gainers. These complexes were followed by First American (up $48.7B, or 68.0%), Dreyfus (up $35.0B, or 22.0%) and Northern (up $31.4B, or 23.8%). Morgan Stanley, SSGA, Dreyfus, Fidelity and Goldman Sachs had the largest asset increases over the past 3 months, rising by $26.7B, $18.4B, $13.0B, $11.8B and $11.4B, respectively. The largest decliners over 3 months included: Federated Hermes (down $35.2B, or -9.6%), Wells Fargo (down $21.6B, or -9.6%), BlackRock (down $17.1B, or -3.9%), Schwab (down $15.2B, or -8.3%) and American Funds (down $14.3B, or -9.1%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $907.3 billion, or 19.2% of all assets. Fidelity was up $1.4 billion in January, up $11.8 billion over 3 mos., and up $93.3B over 12 months. Vanguard ranked second with $495.6 billion, or 10.5% market share (up $2.9B, up $3.9B and up $82.1B for the past 1-month, 3-mos. and 12-mos., respectively). BlackRock was third with $425.6 billion, or 9.0% market share (down $11.9B, down $17.1B and up $89.8B). JP Morgan ranked fourth with $422.8 billion, or 8.9% of assets (up $9.3B, up $10.0B and up $61.1B for the past 1-month, 3-mos. and 12-mos.), while Federated Hermes took fifth place with $330.8 billion, or 7.0% of assets (down $9.2B, down $35.2B and up $25.4B).

Goldman Sachs was in sixth place with $303.3 billion, or 6.4% of assets (down $11.6 billion, up $11.4B and up $69.9B), while Morgan Stanley was in seventh place with $234.6 billion, or 5.0% (up $10.8B, up $26.7B and up $95.2B). Dreyfus ($207.8B, or 4.4%) was in eighth place (up $12.4B, up $13.0B and up $35.0B), followed by Wells Fargo ($202.8B, or 4.3%, up $4.1B, down $21.6B and up $68.4B). Schwab was in 10th place ($168.9B, or 3.6%; down $4.5B, down $15.2B and down $27.6B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($167.5B, or 3.5%), SSGA ($144.1B, or 3.0%), American Funds ($143.0B, or 3.0%), First American ($121.9B, or 2.6%), Invesco ($75.9B, or 1.6%), UBS ($51.3B, or 1.1%), T Rowe Price ($44.9B, or 0.9%), HSBC ($39.4B, or 0.8%), Western ($33.9B, or 0.7%) and DWS ($23.6B, or 0.5%). Crane Data currently tracks 65 U.S. MMF managers, unchanged from 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, JP Morgan, BlackRock, Vanguard, Goldman Sachs, Federated Hermes, Morgan Stanley, Dreyfus/BNY Mellon, Wells Fargo 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 ($919.1 billion), JP Morgan ($629.1B), BlackRock ($618.5B), Vanguard ($495.6B) and Goldman Sachs ($426.6B). Federated Hermes ($342.2B) was sixth, Morgan Stanley ($280.2B) was in seventh, followed by Dreyfus ($230.8B), Wells Fargo ($203.9B) and Northern ($194.4B) 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 February issue of our Money Fund Intelligence and MFI XLS, with data as of 1/31/21, shows that yields were flat in January for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 748), was flat at 0.02% for the 7-Day Yield (annualized, net) Average, the 30-Day Yield was also unchanged at 0.02%. The MFA's Gross 7-Day Yield was unchanged at 0.15%, the Gross 30-Day Yield was also unchanged at 0.15%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.02% (unch) and an average 30-Day Yield that was also unchanged at 0.02%. The Crane 100 shows a Gross 7-Day Yield of 0.15% (unch), and a Gross 30-Day Yield of 0.15% (unch). Our Prime Institutional MF Index (7-day) yielded 0.04% (unch) as of January 31, while the Crane Govt Inst Index was unchanged at 0.02 and the Treasury Inst Index was unchanged at 0.01%. Thus, the spread between Prime funds and Treasury funds is 4 basis points, and the spread between Prime funds and Govt funds is 3 basis points. The Crane Prime Retail Index yielded 0.02% (unch), while the Govt Retail Index was 0.01% (unch), the Treasury Retail Index was also 0.01% (unchanged from the month prior). The Crane Tax Exempt MF Index yielded 0.01% (unch) in January.

Gross 7-Day Yields for these indexes in January were: Prime Inst 0.20% (unch), Govt Inst 0.13% (unch), Treasury Inst 0.13% (unch), Prime Retail 0.22% (unch), Govt Retail 0.12% (unch) and Treasury Retail 0.12% (unch). The Crane Tax Exempt Index was unchanged at 0.17%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.01% over 3-months, 0.00% YTD, 0.26% over the past 1-year, 1.33% over 3-years (annualized), 0.99% over 5-years, and 0.51% over 10-years.

The total number of funds, including taxable and tax-exempt, was down one at 929. There are currently 748 taxable funds, down one from the previous month, and 181 tax-exempt money funds (unchanged from the previous month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.

The February issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Covid Changing Cash; Social, ESG MMFs Making Impact," which reviews the latest in environmental, social and governance MMFs; "Money Fund University 2021: A Look at History, Instruments," which highlights quotes from our recent basic training webinar; and, "Fee Waivers Bite: $3.1 Billion & Counting; Revenue $6 Tril.," which explores pressures on MMF expense ratios. We also 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 February Money Fund Portfolio Holdings are scheduled to ship on Tuesday, February 9, and our February Bond Fund Intelligence is scheduled to go out Friday, February 12. (Note: A press release entitled, "SEC Requests Comment on Potential Money Market Fund Reform Options Highlighted in President's Working Group Report" was posted yesterday. Watch for full coverage next week.)

MFI's lead article says, "As we move into 2021 and prepare to re-emerge from the coronavirus era, the world of cash investing continues to adapt to the ever-changing rate and regulatory environment, and it continues to be confused over the push towards 'ESG' and 'Social' MMFs. We list the latest group of ESG funds on page 5 (we expect more soon), and we briefly review the latest in the space below."

"SSGA published 'Transformed Overnight: How COVID-19 Changed Cash,' which talks about several major themes in the money markets last year, including one of the biggest, ESG. SSGA's Will Goldthwait writes, in a section entitled, 'The Quest for Yield: Lower for Much Longer,' 'Entrenched low interest rates are prompting concern that the corporate treasury department will revert from profit center to cost center. While safety and liquidity remain top priorities, cash managers 'have never before kept such a sharp eye on yield across their providers,' observed one relationship manager. 'Every basis point matters now.'"

Our "MFU 2021" piece reads, "Crane Data recently hosted its annual 'basic training' event, Money Fund University, where speakers reviewed various segments and aspects of the money markets. But they also managed to sneak in some comments on current events. We briefly review and excerpt from some of the highlights below. (Note: Crane Data Subscribers and Money Fund University Attendees may access the MFU `Powerpoint and recordings via our 'Money Fund University 2021 Download Center.')"

It goes on, "During the 'History & Current State of Money Market Mutual Funds' introduction, our Peter Crane comments, "Money funds turned 50 years old in October ... so we're celebrating all year. It’s been a wonderful ride…. First let me give you some basics … Money funds are ... short-term bond funds, with quality, diversity, liquidity, and maturity guidelines around them. The stable $1.00 a share price was one of the key elements.... They use something called amortized cost, so the fluctuations were minimal, and they were always priced at $1.00.'"

Crane continues, "But, we've seen rounds of regulatory reforms, and the 2014 reforms that went into effect in 2016 allowed some money funds' NAVs to float.... So, the dollar feature of money funds is shifting somewhat from what it was historically.... Money funds were having a nice recovery, rates had been up over 2% again.... In 2019 and 2020, money fund assets grew by just under 20% each year.... You can see that super spike up from dash to cash coronavirus growth."

The "Fee Waivers" article tells readers, "Mutual fund news source ignites published the article, 'Sponsors Waived $3.1B in Money Fund Fees in 2020.' They write, 'Money market fund sponsors waived $3.1 billion in fees last year, according to Investment Company Institute data. An economic slowdown spurred by the coronavirus pandemic led the Federal Reserve to cut short-term interest rates twice last March, to zero, after about two years of keeping the benchmark rate above 1.5%. With those cuts, yields tumbled, and a growing number of money funds began waiving fees to avoid zero or negative yields.'"

Ignites explains, "As of December, 94% of all money fund share classes waived a portion of expenses, ICI data shows. That compares to 68% in January 2020.... The overall increase last year in money fund assets also pushed up the total amount of fees waived. Investors piled into money funds in March amid liquidity concerns, adding about $700 billion to the products that month, according to Crane Data."

The latest MFI also includes the News piece, "SEC Seeks Comments on Reforms." It says, "See the release, "SEC Requests Comment on Potential Money Market Fund Reform Options Highlighted in President's Working Group Report," and see our coverage inside on the PWG report." We also include the brief, "Money Fund Assets Flat in January," which explains, "ICI's weekly 'Money Market Fund Assets' report shows assets down in the latest week, after rising 3 out of 4 prior weeks. Crane Data shows assets up $5.6 billion to $4.730 trillion."

A third news brief entitled, "Federated Hermes Launches Conservative 'Microshort'," says, "The release, 'Federated Hermes, Inc. Launches Two New Microshort Funds,' tells us, 'Federated Hermes ... announced the launch of Federated Hermes Conservative Microshort Fund and Federated Hermes Conservative Municipal Microshort Fund. The actively managed funds offer an innovative approach to liquidity management by pursuing higher yields than money market strategies while simultaneously aiming to maintain lower NAV volatility by investing in securities with shorter maturities than traditional ultrashort products.'"

Our February MFI XLS, with January 31 data, shows total assets rose by $5.6 billion in January to $4.730 trillion, after decreasing $6.7 billion in December, $11.7 billion in November, $46.8 billion in October, $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 was unchanged at 0.02%, our Crane 100 Money Fund Index (the 100 largest taxable funds) also remained flat at 0.02%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), both the Crane MFA and the Crane 100 sat at 0.15%. Charged Expenses averaged 0.13% 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 1/31.) The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 42 (up a day) and 46 days (unch.) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Federated Hermes is the latest firm to enter the "Conservative" Ultra-Short Bond Fund space, we learned from a press release entitled, "Federated Hermes, Inc. Launches Two New Microshort Funds." The release explains, "Federated Hermes ... announced the launch of Federated Hermes Conservative Microshort Fund and Federated Hermes Conservative Municipal Microshort Fund. The actively managed funds offer an innovative approach to liquidity management by pursuing higher yields than money market strategies while simultaneously aiming to maintain lower NAV volatility by investing in securities with shorter maturities than traditional ultrashort products." (Note: Watch for more on Conservative Ultra-Short Bond Funds in our next issue of Bond Fund Intelligence, and at our next virtual event, Crane's Bond Fund Symposium, which will be held online March 25-26, 2021.)

It continues, "Federated Hermes Conservative Microshort Fund seeks to provide current income with capital preservation while maintaining liquidity. Federated Hermes Conservative Municipal Microshort Fund seeks to provide current income on a tax-exempt basis and preservation of capital with an emphasis on maintaining liquidity."

Federated Advisory Companies President & CEO John Fisher comments, "As our clients seek yield advantage while rates remain historically low, our new microshort funds extend our range of customized liquidity-management offerings at the short end of the yield curve.... The cross-team management, a mainstay of Federated Hermes' collaborative culture, taps the knowledge and unwavering client focus of our experienced professionals to optimize investment choices across liquidity and fixed-income universes."

Federated tells us, "As complements to money market and short-term allocations, the new microshort funds are jointly managed by Federated Hermes' liquidity and fixed-income teams. Each member of the team brings 20 to 40 years of investment experience and incorporates insights from fundamental factors, rigorous analysis and our proprietary ESG dashboard."

They add, "Key portfolio managers of the Conservative Microshort Fund include Randall S. Bauer, senior portfolio manager, head of low-duration strategies; Paige Wilhelm, senior portfolio manager and head of prime liquidity group; Nicholas Tripodes, portfolio manager and senior investment analyst; and Mark Weiss, senior portfolio manager. Key portfolio managers of the Conservative Municipal Microshort Fund are Mary Jo Ochson, chief investment officer and head of the tax-free liquidity investment area and short-term municipal bonds; Kyle Stewart, senior portfolio manager and senior investment analyst; and Patrick Strollo, senior portfolio manager and senior investment analyst."

For more on Ultra-Short Bond Funds, see these Crane Data News pieces: "Vanguard Launching Ultra-Short Bond ETF; Weekly MF Portfolio Holdings" (1/21/21); "Dec. Bond Fund Intelligence: Bond Funds Break $5 Tril; European BFs" (12/14/20); Wells Podcast on Increasing Yield (12/10/20); "Bond Fund Webinar Recap: Junker, Roever, Walczak Talk Ultra-Shorts" (10/5/20); and "Morgan Stanley's Buck Says Corps Going Beyond MMFs on TMANY Webinar" (9/21/20).

In other news, a release entitled, "ICD Portal Named Best Investment Management Solution" tells us, "The treasury industry has recognized ICD's independent portal for money market funds and other short-term investments as the Best Investment Management Solution in this year's Global Finance awards for Best Treasury and Cash Management Banks and Providers. Winners were chosen from across 75 countries and territories."

ICD CEO Tory Hazard comments, "We're thrilled to be recognized by the broad community of participants in the treasury industry.... Treasury's ability to move easily in and out of funds and at the right time is in no small part aided by the kind of independent portal technology and high-touch service ICD offers, which is especially important in times of market stress like we've seen during this pandemic."

The release continues, "Throughout the pandemic, ICD's data against the industry benchmark indicates that investors using ICD Portal act more quickly than the rest of the market to de-risk portfolios and find opportunities in short-term investments. ICD has added number of investment products in recent months that allow organizations to find yield while still offering same-day liquidity in a near-zero rate environment."

Global Finance's Joseph Giarraputo says, "Smart management of cash and treasury systems were essential over the past year of pandemic-induced chaos.... Our awards pinpoint the financial entities that shepherded their clients through the crisis with real-time insights and strategies that worked even at a time of rapid and dramatic changes." It adds, "To determine winners of the awards, Global Finance used a multi-tiered assessment process, which included input from industry analysts, corporate executives, technology experts and independent research."

Finally, Capital Advisors Group published "Vaccines, ESG and LIBOR Replacement – Three Themes to Watch in 2021." They write, "At the start of each year, we typically name three broad themes that we think will have the greatest potential impact on the short-term debt markets. Our 2020 picks posed three questions: a) Would the Fed give in to the market's expectation of further rate cuts? b) When and how would the repo market return to normal? c) And was ESG investing in cash management a fad? As it turned out, the biggest factor that dominated everything else in 2020 was the Covid-19 pandemic that dramatically changed the ways we live, work, and interact, if not invest."

The update continues, "As we look towards 2021, a consensus emerges that, beyond a tumultuous 2020 and a long dark winter, a bright future awaits us as individuals and as an economy. Yet, global central banks' commitment to continued monetary policy assistance could mean historically low interest rates for longer and more risk-taking behaviors on assets, both of which can be challenging for cash investors."

CAG's Lance Pan explains, "Of these contrasting outlooks, we offer our three picks of the trends to watch in 2021 that may shape cash investment strategies: a) a path of recovery dependent on successful vaccine rollouts; b) ESG investing going mainstream; and c) SOFR replacing LIBOR as the benchmark for floating rate debt issuance."

On ESG, he states, "For institutional liquidity investments, assets managers continue to find ways to meet investor preferences for sustainability by introducing various ESG strategies such as 'green' and 'impact' funds. While unique challenges for cash portfolios exist, as we recently highlighted, we believe a long-term trend is well under way to rotate out of certain industries into sustainable investments, to increase issuance of green and social bonds, and to apply pressure on financial issuers to demonstrate their commitment to ESG initiatives in lending and market-making activities. As 2020 demonstrated, sustainable investing may bring the direct benefits of reduced volatility and lower credit risk in addition to doing good for the planet and society."

Mutual fund technology firm Calastone published a blog piece entitled, "Money Market Services in Person - With Peter Crane, Founder, Crane Data." Calastone's Ed Lopez explains, "In the first of our in-person interviews, I speak with Peter Crane, founder of money market and mutual fund information company Crane Data. As a perennial commentator on the industry, he was a great place to start as we look to shed light on how the industry is changing, what money market investors are looking for and how fund providers/portals can make a real difference. With money market funds experiencing huge turbulence during the early part of the Covid-19 crisis as companies everywhere focused on liquidity and cash preservation -- how is this asset class, which is critical for corporate funding market, looking as we start 2021?"

Calastone first asked about the lessons of the March crisis. Crane answers, "People still haven't decided what the big lessons of the financial crisis were in 2007 and 2008. The real lesson is stuff happens and the overriding message for individuals and companies -- which is self-serving for near-cash assets like money market funds -- is to hold more cash. You need an extra buffer.... There's no way to prevent a once-in-100-year flood, whatever you do. It's the circle of life -- it's going to happen again. But it's always the run, never the blow-up, that causes the issues. When you're investing in a higher yielding option, it's not just the investment risk, it's the fact that it attracts hot money looking for yield. And the hottest money is going to bring extra risk because people may run faster."

On zero rates and money fund viability, Crane comments, "People fear negative yields because they don't know them. But the question for money market funds is whether they're covering their costs or subsidising. One of the misunderstandings is that with zero yield they must be waiving fees. But in general, fee waivers are almost always partial fee waivers, so they're making less money -- which is not good, but it's not the end of the world. That's what you saw in the US from 2009 through 2015, when rates were supposedly zero but were actually 15 or 20 basis points. Investors were seeing zero, but there was this little bit of fee income to sustain the funds. And of course, once rates go negative, as they have with Euro money market funds, they still charge their fee on the assets invested. And in fact, assets in Euro funds have had a surprising bump up recently. They are at record levels, which is just shocking considering they've been negative 0.4%, negative 0.5%, for over five years."

He continues, "But the thing that's really underappreciated about super-low rates is what they do to corporations', institutions' and individuals' income streams. Everybody thinks lower rates are good in general, and of course they presumably help entities that are borrowing on the other side. But higher rates have a real upside -- which is the income that pours out. The dividends alone that money funds generate normally are hundreds of billions of dollars: huge numbers."

Crane adds, "Most people think all prime funds are the same, all treasury funds are the same, all government funds are the same. But there are differences between the funds in each group and tiers of safety even among the safest type of funds. Checking each fund's prospectus or offer documents to find out what it can or can't buy is important, as a matter of due diligence."

Finally, discussing if money funds are too big to fail, Crane responds, "Money funds turned 50 last month -- the first one was the Reserve Fund that back in 2008 broke the buck. In general, they've had very rare periods of needing support. In 2008, the US Fed and Treasury stepped in and stopped the run, and everything was fine. It didn't cost them a dime. This time, they stepped in, threw all the money in the world at the problem, stopped the run and it didn't cost them a dime. People were saying 'well, next time we should do anything else but that'. But it worked like a charm. Why would you seek another solution?"

In other news, Barron's writes, "Money-Market Funds Create a New Term for Losing Money." They explain, "Although most experts don't think negative interest rates are likely, the fund industry recently began making its pitch to regulators for what to do just in case. Reverse distributions -- a paradoxical term that sounds almost Orwellian, like 'war is peace' -- are exactly what the Investment Company Institute, a fund trade group, describes in a December report about money-market funds. The report was meant to address concerns that U.S. money funds won't be able to maintain even zero yields after deducting their fees in a negative interest-rate environment -- as has been the case in Europe since 2014."

The article continues, "The ICI's paper describes a process in which instead of getting an income payment, a reverse distribution mechanism, or RDM, 'distributes a [constant net asset value or] CNAV money-market fund's negative yield by canceling shares in shareholder accounts. It offsets the daily negative yield accrued (i.e., a decline in the fund's net assets) by reducing the number of fund shares outstanding. This process allows the fund to maintain a constant NAV per share, typically $1.00.'"

Barron's explains, "RDMs create the illusion that investors aren't losing money by preserving the $1 NAV while share count declines. The purpose though isn't to deceive investors but to prevent NAVs from declining below $1 from fee and yield erosion in a negative-rate environment." Our Peter Crane comments, "In the current [zero interest rate] environment, [money funds] are waiving more than half of their fees.... So instead of charging [0.28%], they’re charging [0.13%] currently."

The piece continues, "Some money managers say maintaining a $1 NAV, even if share counts decline, is easier for brokers that sell funds to keep track of when they sweep cash in and out of funds every day.... The coronavirus remains an economic wild card, however. The Federal Reserve Bank 'has said they do not want to go negative, but you never say never,' Crane says. 'You get another huge shock to the economy to push us back down, and all of a sudden, negative rates and deflation could be a possibility, again.'"

The article continues, "So, if the RDM scenario is unlikely in 2021, why did the ICI publish a report detailing it at the end of 2020? One reason was to publicly make the RDM case. The ICI's 'putting this out there not only for people in the industry and their clients but also for the regulators themselves to help understand [RDMs] could work,' [Wells Fargo Asset Management's Jeff] Weaver says. The other was client concern. 'The topic of negative rates was so persistent through last year from the beginning [of the pandemic crisis] in March, you couldn't have a conversation with a client or colleague without a discussion about [it].'"

Lastly, the piece adds, "Certainly, if RDMs were to happen, educating investors would be challenging. 'This is something that would be new to most investors, especially retail investors,' acknowledges Jeff Naylor, the ICI's director of operations and distribution. 'We do highlight in the paper, the need for a communication strategy for both the funds and the intermediaries.'"

For more, see these Crane Data News pieces: "SIFMA on Negative Sweeps" (1/5/21); "ICI Ops on RDM, Negative Yields; N-MFP Holdings: Treasuries Still Half" (12/9/20); "ICI on Reverse Distribution Mechanism" (12/8/20); "More from Mini Fund Symposium: Dechert's Cohen on ESG, RDM, Reforms" (9/2/20); "N-MFP Holdings: Treasuries Half; JPM, Ignites on RDM, Negative Rates" (6/9/20); "European MMF Reforms Going Live, or Not? Economist Swipes at RDM Kill" (1/22/19); and "WSJ: Yu'e Bao Shrinking; Europe Still Unclear on RDM Ban; Weekly Holds" (11/1/18).

S&P Global Ratings recently published an update entitled, "U.S. Domestic 'AAAm' Money Market Fund Trends (Fourth-Quarter 2020)." They explain, "With $2.9 trillion in assets, it is fair to say that the U.S. domestic government and prime money market funds (MMFs) rated by S&P Global Ratings in 2020 can be divided into two halves. The first half can be categorized as 'inflows,' as fund asset levels grew 35% to $3.2 trillion following market disruption in March because of COVID-19. The second half can be classified as 'outflows,' albeit moderate (-8%), as investors cautiously moved assets out of lower yielding MMFs in pursuit of greater yields elsewhere. Government funds and prime funds both saw outflows of $225 billion (or 8%) and $43 billion (or 10%), respectively, but, overall the year was one of growth for U.S. domestic MMFs."

S&P continues, "Emphasis should be placed on the 33% increase in government MMF assets resulting from wider market concerns related to the pandemic. By contrast, in 2020, prime funds endured net outflows of 11%, coinciding with a dramatic fall in yields. Although these conditions contributed to some consolidation in the prime industry during the year, prime funds have remained a valuable option for institutional investors."

They tell us, "The trajectory of fourth quarter yields is paralleled to the previous quarter. Seven-day net yields declined to 0.02% for both government and prime funds, and 30-day yields settled in close range at 0.02% and 0.08% for government and prime funds, respectively. The deterioration of yields from pre-COVID-19 made fee waivers more prominent for fund managers in 2020 as many utilized them during the year and anticipate needing to do so in the future."

S&P comments, "Government and prime funds took advantage of ample Treasury bills throughout 2020 to support overnight liquidity. Treasury bill exposure in government funds reached a high of 45% by year end. Prime funds decreased their allocation slightly, ending the quarter at 7%.... Weighted average maturities (WAM) moved minimally over the quarter as managers held steady preparing for possible redemptions at year end. Managers extended the maturity of government funds by only one day while prime funds remained unchanged."

They write, "While market liquidity remained a concern, positive yield generation was renewed. Effective 'A-1+' exposure in government funds decreased during the fourth quarter for the first time since March, and purchases of 'A-2' rated overnight repo became a regular strategy managers used to add yield to their portfolios. Prime funds 'A-1+' credit quality remained relatively consistent during the year, averaging 68%. During the third and fourth quarters, comfort in credit was partially restored as managers moved back into CDs and CP, albeit with a focus on higher quality names. Exposure to corporate floating rate securities declined to less than 2%, most likely as the original end date of LIBOR was scheduled for December 2021, but has now been delayed to June 2023."

S&P's "Trends" also says, "Throughout the year we observed significant narrowing of net asset values (NAVs) for rated funds. Nearly all funds ended the year in the 0.9996-1.0005 range. The lower bound at year end was 0.9997, whereas the lower bound during the greatest market stress (first quarter of 2020) was 0.9985. No S&P Global Ratings funds dropped below .9975 during 2020."

Lastly, it concludes, "The impacts from numerous challenges in 2020 will certainly continue in 2021. Major topics on the horizon will be the end of the Federal Reserve's Money Market Mutual Fund Liquidity Facility, possible slowed issuance of Treasury Bills, and the regulatory spotlight once again shone on the industry."

A separate S&P update, "European 'AAAm' Money Market Fund Trends (Fourth-Quarter 2020)," tells us, "European-domiciled MMFs' rated by S&P Global Ratings recorded double-digit net assets growth in 2020, despite the COVID-19 pandemic effects. Euro and sterling denominated MMFs had positive inflows in the fourth quarter, ending the year with assets under management at €125 billion and £252 billion, respectively. The highest euro levels since August 2012 and record highs for sterling. U.S. dollar funds' assets, $483 billion at year-end, declined slightly over the fourth quarter having reached their highest levels, in August 2020, at $524 billion."

It states, "During the fourth quarter of 2020, seven-day net yield averages trended lower across the three currencies compared with the third quarter of 2020. Most notably, S&P Global Ratings calculated seven-day net yield average for 'AAAm' rated sterling-denominated funds, at -0.01% at the end of December 2020, entered negative rate territory for the first time.... In this context, a majority of sterling money-market fund providers continued to apply fee waivers for a zero net yield; however, we saw a number of rated funds amend governing documents for potentially negative interest rates in sterling and in U.S. dollars."

S&P also comments, "Weighted average maturities (WAM) extended during the fourth quarter, with sterling-denominated funds the most notable. However, since March 2020, on average USD funds have extended their WAMs by 11 days, as they seek to offset a potential zero yield. Also, in their thinking is that within a MMFs investment horizon (397 days), there is a very low probability of interest rates drastically changing."

They add, "We consider credit quality to play a key role in net asset value (NAV) stability and view higher-rated assets as reflecting higher price stability. As of year-end 2020, 'A-1+' credit quality percentages represented well above the 50% minimum requirements for 'AAAm' rated funds across the three currencies, with a 67% , 64% and 76% allocation to 'A-1+' issuers held in euro, sterling and U.S. dollars MMFs, respectively.... This is also higher than pre-COVID-19's 2019 year-end levels. However, we noted a meaningful decline of the 'A-1+' issuer allocation compared to September 2020 across the MMFs, which may reflect year-end market conditions and possible improvements in the economic outlook expectations with the start of mass COVID-19 vaccination programs in developed countries."

Finally, S&P says, "In the past nine months money market funds have been tested by the impact of COVID-19, however, in our view they remain an appealing cash management tool for institutional investors. Through a money market fund's high credit quality investments, diversified by issuer, instrument, and geography, with an aim of providing daily liquidity, it is clear to see that MMFs play an important role in the investment world.... [T]he European-domiciled money market funds rated by S&P Global Ratings, with €803 billion (US$981 billion) in assets under management as of Dec. 31, 2020, continue to meet our money market fund criteria metrics."

Federated Hermes, the 5th largest manager of money market funds, released its Fourth Quarter Earnings last week and hosted its Q4'20 Earnings Call on Friday. The release explains, "Federated Hermes' money market assets were $420.3 billion at Dec. 31, 2020, up $24.8 billion or 6% from $395.5 billion at Dec. 31, 2019 and down $12.7 billion or 3% from $433.0 billion at Sept. 30, 2020. Money market mutual fund assets were $301.9 billion at Dec. 31, 2020, up $15.3 billion or 5% from $286.6 billion at Dec. 31, 2019 and down $24.0 billion or 7% from $325.9 billion at Sept. 30, 2020. Federated Hermes' money market separate account assets were $118.5 billion at Dec. 31, 2020, up $9.6 billion or 9% from $108.9 billion at Dec. 31, 2019 and up $11.5 billion or 11% from $107.0 billion at Sept. 30, 2020." We quote from the release and review the money fund-related highlights from the call below.

Federated continues, "Revenue increased $5.9 million or 2% primarily due to higher average money market, equity and fixed-income assets. Revenue also increased as a result of revenue from a previously nonconsolidated entity being recorded in operating income beginning March 2020 and an increase in performance fees. These increases in revenue were partially offset by voluntary fee waivers related to certain money market funds in order for those funds to maintain positive or zero net yields (voluntary yield-related fee waivers).... During Q4 2020, Federated Hermes derived 67% of its revenue from long-term assets (42% from equity assets, 15% from fixed income assets and 10% from alternative/private markets and multi-asset), 32% from money market assets, and 1% from sources other than managed assets. Operating expenses decreased $6.1 million or 2% primarily due to decreased distribution expenses primarily resulting from voluntary yield-related fee waivers."

The release states, "For Q4 2020 and full-year 2020, voluntary yield-related fee waivers totaled $56.1 million and $113.0 million, respectively. These fee waivers were largely offset by related reductions in distribution expenses of $47.4 million and $98.4 million, respectively, such that the net negative pre-tax impact to Federated Hermes was $8.7 million and $14.6 million, respectively."

President & CEO Chris Donahue comments, "Moving to the Money Market. The fourth quarter asset decrease reflected lower fund assets of about $24 billion, partially offset by higher separate account assets of about $12 billion. Year-end money fund assets were down about $43 billion from mid-2020 peak and up about $15 billion from the prior year. As we have experienced in past cycles, our money market business has reached higher highs and higher lows once again. Our money market mutual fund share, including sub-advised funds at quarter-end, was at about 7.8%, down from the prior quarter share of 8.1%. Taking a look now at recent asset totals: Managed assets were approximately $621 billion, including $416 billion in Money Markets, $95 billion in equities, $87 billion in fixed income, $19 billion in alternative and $4 billion in multi-asset. Money Market Mutual Fund assets were $290 billion."

CFO Tom Donahue adds, "Total revenue for the quarter was about the same as in the prior quarter, as growth in revenue related to long-term assets, including equity, fixed income, private markets, and performance fees and carried interest was offset by higher money market fund waivers and the impact of lower money market assets, again showing our significant value of our diversified business mix.... The decrease in distribution expense compared to the prior quarter was due mainly to the impact of minimum yield waivers and lower money market assets, which reduced distribution expense by about $15 million. This was partially offset by the impact of higher equity assets."

During the Q&A, MM CIO Debbie Cunningham was asked about repo, or repurchase agreements. She responds, "With regard to rates and what is driving the repo market to those lower rates, we're currently in somewhere of a 3 basis points to 7 basis point range, [and] hit as low as 2 basis points ... earlier this week. In some late afternoon, thin markets, [at] various times last week was actually trading negative. Now we didn't participate in any of that.... [It was] again, very thin and [a] small portion, two way flow. But nonetheless, it was in negative territory. [It was] driven by a couple things: number one, mainly just huge amounts of cash that needs to be put to work in the short end. And thankfully, we do have a fairly good supply of Treasury and mortgage-backed securities. However, [this] hasn't grown much."

She says, "As far as allocations go with our money market and liquidity products to repo, obviously, the largest amounts would be in our Treasury and our government agency funds. We attempt to do term repo and other types of non-overnight securities in order to reduce our exposure to that overnight marketplace, where going out the curve a little bit with different security types, you can get a little bit more in yield, although not a whole lot. I mean, the whole Treasury yield curve at this point is basically 5 basis points to 9 basis points from one month out to one year."

Cunningham adds, "But ... we still have repo positions for liquidity purposes in those funds, that are anywhere from 40 to 55-ish type percent, and when you look at our other types of products, our prime products, in particular, that would also be using repo in the taxable liquidity world. The exposure there is actually very small, less than 10%. They use other types of overnight paper that has generally [a higher] rate perspective, overnight ... paper, overnight CDs, other types along those lines."

When asked about future regulations, Chris Donahue responds, "So on the regulation front, we've all seen the President's Working Group Report, and that was basically the SEC throwing out everything that they had in their drawer on the subject -- many of which had been totally rejected before, all of which we have seen before. The most important one is, as I've discussed on this call before, the elimination of that 30% [WLA] trigger, which is both unnecessary and unwise. And we pointed that out before and was really an artificial trigger to what was a government shutdown causing disruptions in the short-term markets."

He tells us, "We don't know what will happen under the new regime in Washington, and they're just getting started, so it's hard to predict. But we are ready with our friends in Congress and with all of the arguments we've had before. Because the money market fund, especially on the tax free side, is especially relevant when there are tremendous efforts to get money to municipalities as part of stimulus appropriations of the pandemic. This is a great financing vehicle, and you could return $500 billion of marketplace-oriented short-term cash into that short-term market by the beauty of those money market funds, to say nothing of what happened on the prime side."

Cunningham comments, "As far as our total prime assets go right now, they're about $125 billion [including] $53 billion or so in ... other types of separate accounts, offshore, LGIP-type of assets. As far as allocation within those products to sectors of the prime market, the largest sectors remain with exposure to the asset-backed commercial paper world, the CD world and then other types of financial commercial paper. We also have some exposure in the non-traditional repo market, which ... doesn't really have the same issues associated with it, as ... traditional Treasury and agency repo. Then, ABS exposure, but in the shortest tranches and a very tiny exposure."

She adds, "As far as just to add to what Chris was talking about from a regulatory perspective, we've seen the ICI come out with what we thought was a very comprehensive piece that covered the money market, not just money market funds [but a] broader base. [They] will be focusing on that in particular.... Where I think the President's Working Group will end up focusing is, number one ... the broader market. But also some of the things that changed in the 2014 amendments that went into effect in 2016, having to do with gates and fees and triggers on liquidity ... whether they should [exist], whether they should be delinked from triggers of liquidity, and whether they should be considered separately entirely from a gates perspective versus a fee perspective."

When asked another question about rates, Cunningham answers, "Obviously short term rates are anchored to Fed policy. And at this point, Chair Powell earlier this week, told us, we're still in a very good environment. There is going to be stimulus, and it's not going to change in the near-term. So we tend to believe him.... The Fed is not in play in 2021. There's just no way that's going to happen. But we also think that the guidance that they've given that leads us to a 2023 timeframe might be a little bit too long, given some of those scenarios.... We're probably thinking about a steeper yield curve with Fed policy ... in the second half of 2022, at least at the rate that we're currently progressing."

She explains, "So where does that put out in the context of this year, this day, these funds? It's essentially a kind of a technical market at this point, that's going to be driven a lot by supply and demand. [There is] a lot of front end cash.... When that front end cash starts to get more comfortable -- as the yield curve on the bond side backs up or as the equity market maybe pulls off a little bit and they re-enter those markets -- some of the cash will leave the liquidity markets and that in and of itself less demand will probably yield curve will steepen."

Cunningham adds, "On the other side of the equation, the supply side: we [may] get additional Treasury supply, GSE supply is probably pretty stagnant for the year, commercial paper should pick up though as industry picks up, [so] that's the supply side. You've got more supply, less demand in that situation [so] perhaps you get a little bit of a steeper money market yield curve. That doesn't mean you get 15 basis points or 20 basis points, it probably means you get 3 basis points to 5 basis points. So that's sort of the neighborhood that we're looking at from a steepness standpoint in 2021."

Finally, Donahue says, "In the whole history of money funds going back into the '70s, to me, the way to look at it is people will always need to have their cash managed. There are various things that occur in the marketplace that incensed them more. Yes, higher rates would be more helpful. But on the other hand, if you go back to a standard issue, wealth management [metric], about 20% of that money is always in cash in any event, whether they're long the market, whether their bets on, bets off. It's just the ebb and flow of life, and you couple that with the increase in money supply, the overall increase in markets and portfolios being a percentage of those increases in value, there is always constant demand for the cash."