News Archives: March, 2021

The Investment Company Institute released its latest monthly "Trends in Mutual Fund Investing" and "Month-End Portfolio Holdings of Taxable Money Funds" for February 2021 yesterday. Their monthly "Trends" report shows that money fund assets increased $39.4 billion in February to $4.368 trillion. This follows decreases of $5.2 billion in January, $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 Feb. 28, 2021, money fund assets have increased by a huge $720.7 billion, or 19.8%. (Month-to-date in March, through 3/29, MMF assets have increased by $109.6 billion according to our MFI Daily.)

ICI's release states, "The combined assets of the nation's mutual funds increased by $455.50 billion, or 1.9 percent, to $24.29 trillion in February, 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 $60.21 billion in February, compared with an inflow of $74.26 billion in January.... Money market funds had an inflow of $39.38 billion in February, compared with an outflow of $5.29 billion in January. In February funds offered primarily to institutions had an inflow of $56.10 billion and funds offered primarily to individuals had an outflow of $16.71 billion."

The Institute's latest statistics show that Taxable MMFs gained assets last month while Tax Exempt MMFs lost assets. Taxable MMFs increased by $44.1 billion in February to $4.267 trillion. Tax-Exempt MMFs decreased $4.7 billion to $101.0 billion. Taxable MMF assets increased year-over-year by $754.4 trillion (21.5%), while Tax-Exempt funds fell by $33.7 billion over the past year (-25.0%). Bond fund assets increased by $9.0 billion in February (0.2%) to $5.292 trillion (they broke above the $5.0 trillion level in October); they've risen by $407.8 billion (8.3%) over the past year.

Money funds represent 18.0% of all mutual fund assets (down 0.2% from the previous month), while bond funds account for 21.8%, according to ICI. The total number of money market funds was 331 down nine from the month prior and down from 361 a year ago. Taxable money funds numbered 263 funds, and tax-exempt money funds numbered 68 funds.

ICI's "Month-End Portfolio Holdings" confirms increases in Repo, CP, CD, Notes, and Other securities, and decreases in Treasuries and Agencies. Treasury holdings in Taxable money funds remain the largest composition segment (since surpassing Repo last April). Treasury holdings decreased by $31.9 billion, or -1.4%, to $2.221 trillion, or 52.1% of holdings. Treasury securities have increased by $1.262 trillion, or 131.6%, over the past 12 months. (See our March MF Portfolio Holdings: Repo Jumps; Treasuries, Agencies Decline.")

Repurchase Agreements were in second place among composition segments; they increased by $65.3 billion, or 6.8%, to $1.023 trillion, or 24.0 % of holdings. Repo holdings have dropped $236.7 billion, or -18.8%, over the past year. U.S. Government Agency securities were the third largest segment; they decreased $8.8 billion, or -1.4%, to $607.4 billion, or 14.2% of holdings. Agency holdings have fallen by $117.7 billion, or -16.2%, over the past 12 months.

Certificates of Deposit (CDs) remained in fourth place; they increased by $9.9 billion, or 5.3%, to $198.9 billion (4.7% of assets). CDs held by money funds shrunk by $107.9 billion, or -35.2%, over 12 months. Commercial Paper took fifth place, up $6.5 billion, or 3.6%, to $189.5 billion (4.4% of assets). CP has decreased by $48.5 billion, or -20.4%, over one year. Other holdings increased to $27.6 billion (0.6% of assets), while Notes (including Corporate and Bank) were up to $4.7 billion (0.1% of assets).

The Number of Accounts Outstanding in ICI's series for taxable money funds increased to 42.410 million, while the Number of Funds was down two at 263. Over the past 12 months, the number of accounts rose by 4.295 million and the number of funds decreased by 18. The Average Maturity of Portfolios was 46 days, down one from January. Over the past 12 months, WAMs of Taxable money have increased by 14.

In related news, Crane Data also published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Mar. 26, 2021) includes Holdings information from 69 money funds (down 24 funds from a week ago), which represent $2.084 trillion (down from $2.740 trillion) of the $4.701 trillion (44.3%) 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 $1.102 trillion (down from $1.462 trillion a week ago), or 52.9%, Repurchase Agreements (Repo) totaling $537.4 billion (down from $676.1 billion a week ago), or 25.8% and Government Agency securities totaling $239.5 billion (down from $318.3 billion), or 11.5%. Commercial Paper (CP) totaled $71.5 billion (down from $101.8 billion), or 3.4%. Certificates of Deposit (CDs) totaled $51.7 billion (down from $65.0 billion), or 2.5%. The Other category accounted for $56.8 billion or 2.7%, while VRDNs accounted for $25.6 billion, or 1.2%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.105 trillion (53.0% of total holdings), Federal Home Loan Bank with $120.5B (5.8%), Fixed Income Clearing Corp with $69.4B (3.3%), BNP Paribas with $53.8B (2.6%), Federal Farm Credit Bank with $47.2B (2.3%), JP Morgan with $44.5B (2.1%), RBC with $44.1B (2.1%), Federal National Mortgage Association with $42.0B (2.0%), Barclays PLC with $33.2B (1.6%) and Federal Home Loan Mortgage Corp with $28.3B (1.4%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($218.9 billion), BlackRock Lq FedFund ($168.8B), Wells Fargo Govt MM ($135.9B), Fidelity Inv MM: Govt Port ($135.2B), BlackRock Lq T-Fund ($116.2B), Morgan Stanley Inst Liq Govt ($114.0B), JPMorgan 100% US Treas MMkt ($99.7B), Dreyfus Govt Cash Mgmt ($92.7B), First American Govt Oblg ($87.0B) and State Street Inst US Govt ($80.0B). (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.)

Late last week, the European Securities and Market Authority published a press release entitled, "ESMA Consults on the Framework for EU Money Market Funds," which requests feedback on potential European money market fund reforms. (See our "Link of the Day.") Today, we quote from the full, "Consultation Report: EU Money Market Fund Regulation." The "Executive Summary" explains, "This consultation document is developed in the context of Article 46 of the MMF Regulation, which provides that '[b]y 21 July 2022, the Commission shall review the adequacy of this Regulation from a prudential and economic point of view, following consultations with ESMA'. The COVID-19 crisis has been challenging for MMFs. A number of EU MMFs faced significant liquidity issues during the period of acute stress in March 2020 with large redemptions from investors on the liability side, and a severe deterioration of liquidity of money market instruments on the asset side. In this context, this consultation document discusses the potential reforms of the EU MMF regulatory framework that could be envisaged, in light of the lessons learnt from the difficulties faced by MMFs during the COVID-19 crisis in March 2020."

It continues, "At [the] international level, several workstreams have started to assess the situation faced by MMFs during this crisis, and which policy options should be considered in order to address the issues which have been observed, and potentially enhance further the reforms on MMFs adopted following the 2008 financial crisis. In the EU context, the ESMA work takes the form of an assessment of the functioning and potential need for amendment of the regulatory framework applicable to MMFs in the EU, which is the Money Market Fund Regulation (MMF Regulation) and its implementing measures."

The summary tells us, "The input received through this consultation will therefore be of relevance in the context of the review of the MMF Regulation. This consultation document represents the first step in the development of an ESMA opinion under Article 16a of the ESMA Regulation on the issues described above and sets out proposals on which ESMA is seeking the views of external stakeholders.... ESMA will consider the feedback it received to this consultation in Q2 2021 and expects to publish its opinion on the review of the MMF Regulation in the second half of 2021."

Under a "Review of the MMF Regulation" section, the report says, "The COVID-19 crisis has been challenging for MMFs.... This was particularly the case for some of the Low Volatility Net Asset Value (LVNAV) MMFs in USD and some Variable Net Asset Value (VNAV) MMFs in EUR, which are both mainly exposed to money market instruments issued by financial institutions (Commercial Paper and Certificate of Deposits). Although no EU MMFs suspended redemptions or used liquidity fees on redemptions and redemption gates, the crisis calls for further work on the resilience of the EU MMF industry as well as money markets, following previous regulatory reforms."

An "Overview of the EU MMF sector" section explains, "At the end of 2020, according to ECB data total assets of EA MMFs amounted to EUR 1,445bn. EA MMFs were mainly exposed to non-EA banks (33% of assets), EA banks (31%), other non-EA issuers (18%), EA sovereigns (18%) and EA non-financial corporates (4%). Overall, MMFs are equally exposed to EA issuers (EUR 711bn, 49% of total assets) and non-EA issuers (EUR 734bn, 51%)."

It states, "The market footprint of MMFs is very high globally: US and EU USD MMFs are estimated to hold more than half of the USD CP market, and EU MMFs are estimated to hold around half or EUR and GBP financial CP markets. It is however not possible to provide more statistics and analysis on the size of global money markets and the role MMFs are playing there, because of the significant data gap."

ESMA comments, "EU MMFs are mainly held by institutional investors as there is a negligible share of retail investors in EU MMFs. Around 53% of MMF shares are held by foreign investors, while EA residents hold around 47% of the Net Asset Value (NAV). Within the EU, insurers, pension funds and investment funds are the main investors among financial institutions, while corporate treasurers also account for a significant share of the market."

Discussing "Potential areas of reform of the MMF Regulation," they write, "In light of i) the above assessment in section 2.3 on the ongoing work at international level on the need for MMF reforms and ii) the assessment of certain key features of the difficulties faced by MMF during the COVID-19 crisis in March 2020 included in section 2.2 of this consultation document, ESMA is of the view that a number of proposals of amendments to the MMF Regulation could be considered, in view of its review to be completed in 2022, according to Article 46 of the MMF Regulation."

The section says, "Article 46 of the MMF Regulation specifies that '[b]y 21 July 2022, the Commission shall review the adequacy of this Regulation from a prudential and economic point of view, following consultations with ESMA and, where appropriate, the ESRB, including whether changes are to be made to the regime for public debt CNAV MMFs and LVNAV MMFs'. Given that this review clause includes the need for consultation with ESMA, the corresponding input should presumably be provided to the Commission in the course of 2021, or in early 2022. It is therefore appropriate to consult at this stage on the areas of reforms that ESMA will need to consider."

The report explains, "This section intends to set out the potential different policy options that could be envisaged to address the issues highlighted in section 2.2, focusing on those issues that may be addressed through a modification of the requirements of the MMF Regulation. It is important to specify that these potential policy options are, at this stage, preliminary and no decision has been taken yet on the advice that ESMA would give to the Commission in the context of the above mentioned article 46 of the MMF Regulation."

It tells us, "It is also important to specify that for the sake of the assessment of the potential policy options that are described in the next paragraphs, it has been assumed at this stage that the assessment of the role and economic function played by MMFs in the EU, as conducted by the Commission when the MMF Regulation was first issued, is still relevant. ESMA is of the view that the main objective of the review of the MMF Regulation should be to make MMFs more resilient to stressed market conditions without the need of (implicit) central bank support and to reduce their contribution to the building up of risk in the financial system.... In addition, this will allow to preserve the current economic functions played by MMFs, in particular cash management, and short-term funding to issuers."

Finally, ESMA adds, "It should be highlighted that the analysis and assessment of investor behaviour during the March/April episode is key when drawing conclusions on the policy options. However, while there are ongoing exchanges on this issue at international level, data is scarce and information limited, due in particular to the status of the current reporting framework for MMFs. ESMA would therefore welcome any feedback, based on accurate data, on the behavior of investors during the MMF March 2020 crisis, and how this behavior has affected the shape of the MMF crisis."

This month, MFI interviews Ameriprise Director of Cash Products, Chris Melin. He details the history of the company in cash, comments on the brokerage sweep marketplace and discusses major challenges, including record low rates. Melin also comments on Ameriprise's outlook. Our Q&A follows. (Note: The following is reprinted from the March issue of Money Fund Intelligence, which was published on March 5. Contact us at info@cranedata.com to request the full issue or to subscribe. Note Also: Thanks to those who attended our Bond Fund Symposium Thursday and Friday! Attendees and MFI subscribers may access the recordings and binder materials via our Bond Fund Symposium 2021 Download Center.)

MFI: Give us a little background. Melin: The company was founded back in 1894 with a cash product, a 'faceamount certificate'. Through the Ameriprise Certificate Company, we're still issuing Certificates, which are unique investment products that our advisors can offer to help clients manage their cash. Certificates are guaranteed by the Ameriprise Certificate Company.

In a more traditional sense, we've been offering money market funds and cash management accounts for decades. In 2003 we started offering sweep options with brokerage accounts -- offering money market funds, a free credit balance option and a single bank deposit program. It stayed that way until 2007, when we decided to add a multi-bank program.

As part of Money Fund Reform in 2016, we elected to change our sweep options to government funds -- not wanting to put clients at risk with institutional and retail funds where there was potential for withdrawal gates and fees. We currently offer a multi-bank sweep deposit program, a single bank sweep deposit program, two US government money funds as sweep options and a free credit balance option.

In terms of my background, I've been with Ameriprise since 1992 and with the cash team since 2012, at first working with our Certificate products. I began working with our sweep products in 2014 and continue with those responsibilities today. I also participate in the SIFMA Asset Management Roundtable and have been a co-chair of that group for the last three years.

MFI: Talk about sweeps. Melin: We're part of the IntraFi Network (formerly Promontory) for our single- and multi-bank programs and work with Dreyfus for the money funds that we use for sweep.

MFI: What are your major challenges? Melin: Low yields have impacted the environment in a couple of ways. First, investors are finding it difficult to find attractive yields for their cash allocation and we are seeing cash migrate towards products offering more liquidity. Second, low yields have led some investors to prioritizing maintaining liquidity and return of principal rather than return on principal.

MFI: What are your other priorities? Melin: Our main priority is to continue managing bank sweep capacity to ensure we continue providing clients with appropriate sweep and cash options.

MFI: What are clients saying? Melin: Clients like to understand what options they have available to manage their cash to help achieve their financial goals. To that end, we work with advisors to ensure they are aware of the cash products that Ameriprise offers and how our cash management platform may help clients meet their cash management needs.

MFI: What about your money fund offerings? Melin: We are continually reviewing our money market fund offerings to ensure we maintain a comprehensive and competitive suite of funds that our advisors can use to help clients manage their cash.

MFI: What's your outlook? Melin: Looking forward, it appears short term interest rates will remain near zero for the near future. As such, we are focused on offering advisors the training and capabilities to help meet their clients’ cash management needs in this low interest rate environment.

The Investment Company Institute's latest weekly "Money Market Fund Assets" report shows MMFs skyrocketing in the latest week, their 6th increase in the past 7 weeks and their biggest gain since the last week of April 2020. Money fund assets are up $151 billion, or 3.5%, year-to-date in 2021. Inst MMFs are up $178 billion (6.4%), while Retail MMFs are down $28 billion (-1.8%). Over the past 52 weeks, money fund assets have increased by $226 billion, or 5.4%, with Retail MMFs falling by $13 billion (-0.9%) and Inst MMFs rising by $239 billion (8.8%). We review the latest asset totals, as well as a new ICI study on expenses, below. (Note: Thanks to those who attended our Bond Fund Symposium yesterday afternoon! BFS continues this afternoon from 1-4pm. Attendees and MFI subscribers may access the recordings and binder materials via our Bond Fund Symposium 2021 Download Center. Register here if you'd like to join us!)

ICI's "Assets" release says, "Total money market fund assets increased by $62.10 billion to $4.45 trillion for the week ended Wednesday, March 24.... Among taxable money market funds, government funds increased by $65.36 billion and prime funds decreased by $1.75 billion. Tax-exempt money market funds decreased by $1.52 billion." ICI's stats show Institutional MMFs increasing $65.6 billion and Retail MMFs decreasing $3.5 billion. Total Government MMF assets, including Treasury funds, were $3.834 trillion (86.2% of all money funds), while Total Prime MMFs were $514.2 billion (11.6%). Tax Exempt MMFs totaled $100.0 billion (2.2%). (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 $3.50 billion to $1.50 trillion. Among retail funds, government money market fund assets decreased by $1.13 billion to $1.16 trillion, prime money market fund assets decreased by $1.68 billion to $253.87 billion, and tax-exempt fund assets decreased by $690 million to $88.81 billion." Retail assets account for just over a third of total assets, or 33.7%, and Government Retail assets make up 77.1% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $65.60 billion to $2.95 trillion. Among institutional funds, government money market fund assets increased by $66.49 billion to $2.68 trillion, prime money market fund assets decreased by $71 million to $260.32 billion, and tax-exempt fund assets decreased by $826 million to $11.22 billion." Institutional assets accounted for 66.3% of all MMF assets, with Government Institutional assets making up 90.8% of all Institutional MMF totals.

The ICI also published the study, "Trends in the Expenses and Fees of Funds, 2020." It tells us, "Average expense ratios for money market funds fell 2 basis points from 0.24 percent in 2019 to 0.22 percent in 2020. Fund advisers increased their use of expense waivers in 2020 as the Federal Reserve sharply reduced short-term interest rates to near-zero levels. Expense waivers had previously been offered widely during the period of near-zero short-term interest rates that had prevailed in the post–financial crisis era."

ICI explains, "On an asset-weighted basis, average expense ratios incurred by mutual fund investors have fallen substantially over the past 24 years.... The average expense ratio for money market funds dropped from 0.52 percent to 0.22 percent over this period.... The average expense ratio of money market funds fell 2 basis points from 0.24 percent in 2019 to 0.22 percent in 2020.... Over the past decade, developments that stemmed from changes in short-term interest rates have been the primary factors affecting average money market fund expense ratios."

They continue, "Over 2008–2009, the Federal Reserve sharply reduced short-term interest rates. By 2009, the federal funds rate was hovering at a little more than zero. Gross yields on taxable money market funds (the yield before deducting the fund's expense ratio) -- which closely track short-term interest rates -- fell to all-time lows. This situation remained in stasis from 2010 to late 2015."

The study elaborates, "In this environment, most money market funds adopted expense waivers to ensure that net yields (the yield on a fund after deducting fund expenses) did not fall below zero. With an expense waiver, a fund's adviser agrees to absorb the cost of all or a portion of a fund's fees and expenses for some time. The expense waiver, by reducing the fund's expense ratio, boosts the fund's net yield. These expense waivers are costly for fund advisers, reducing their revenues and profits. From 2009 to 2015, advisers waived an estimated $36 billion in money market fund expenses.... It was expected that when short-term interest rates rose and pushed up gross yields on money market funds, advisers would reduce or eliminate expense waivers, causing the expense ratios of money market funds to rise somewhat."

It adds, "That, ultimately, is what happened. In December 2015, the Federal Reserve raised the federal funds rate by 0.25 percent, signifying a strengthening economy; it was raised eight more times from 2016 to 2018, each time by 0.25 percent. In 2019, however, this trend reversed -- as global trade tensions grew more uncertain and expectations around future global growth fell, the Federal Reserve lowered the federal funds rate three times. These actions were reflected in short-term interest rates and gross yields on money market funds."

ICI concludes, "In 2020, the Federal Reserve slashed the federal funds rate back to near-zero territory as the COVID-19 pandemic effectively shut down the global economy. With short-term interest rates at nearly zero by the end of April 2020, it became more likely that the net yields of money market funds could fall below zero. Consequently, advisers reinstituted the expense waivers they had provided to their money market funds in the ultralow interest rate environment that persisted from 2009 through 2015. For example, at the end 2019, 68 percent of money market fund share classes had expense waivers, but by the end of 2020, an estimated 94 percent of money market fund share classes had expense waivers. Additionally, the expenses waived increased sharply from an estimated $1.2 billion in 2019 to an estimated $3.1 billion in 2020."

For more on expenses, see too ICI's new Viewpoint publication, "Fund Investors' Expenses Are Falling on Both Sides of the Pond." The piece, authored by Shelly Antoniewicz, James Duvall, and Giles Swan, discusses the decline of UCITs and US mutual fund charges as well as the major differences and misperceptions surrounding them. They comment, "For fixed-income funds, the average rate of decline for UCITS ongoing charges was 3.3 basis points per year from 2014 to 2019 compared with an average annual rate of decline of 2.5 basis points for US mutual funds." (Note Also: ICI's Antoniewicz will speak today at our Bond Fund Symposium, along with our Peter Crane, on "The State of the Bond Fund Market.)

Morgan Stanley Investment Management is doubling down on ESG and social money market funds. The manager filed a Prospectus Supplement to launch CastleOak Share Classes for its Morgan Stanley Institutional Liquidity Funds. The filing, which includes new classes for the MSILF US Government and MSILF ESG Money Market Portfolios, tells us, "CastleOak Shares of the Fund are only available to clients of CastleOak Securities, L.P. ... who at the time of initial purchase make a minimum purchase of $5 million. You may not be subject to these minimum investment requirement under certain circumstances." The new CastleOak Shares will have a charged expense ratio of 0.20% after waivers. (Note: See below for more on our Bond Fund Symposium, which takes place online today and tomorrow afternoon (1-4pm). Attendees may access materials via our BFS'21 Download Center.)

CastleOak Securities, which also runs a private-label version of State Street's Fund Connect portal, Money Fund Access, is listed among the Federal Home Loan Bank's D&I (diversity and inclusion) Dealer Group. This list also includes: Academy Securities, Blaylock Van, Loop Capital Markets, MFR Securities, Mischler Financial Group and Stern Brothers. Once these go live, Morgan Stanley's CastleOak shares will join BlackRock's Mischler, JPMAM's Academy, Invesco's Cavu and Goldman's Drexel Hamilton shares as co-branded, D&I broker distributed options for investors.

Morgan Stanley's filing makes it the first fund group to take all three approaches to ESG and Social MMFs -- an ESG Prime MMF, a Social Govt MMF, and share classes distributed via diverse dealers. The firm recently entered the "social" Government space. (See our Feb. 25 News, "Wells Fargo Sells Asset Management Unit; Morgan Stanley Gets Social.") An earlier Prospectus filing 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."

Though the new CastleOak share class is a "social" offering, this latest filing also includes Morgan Stanley's ESG criteria, which explains, "The Fund's investment process incorporates information about ESG issues via an integrated approach within the Adviser's fundamental investment analysis framework.... The Adviser has proprietary ESG-scoring methodologies that explicitly consider the risks and opportunities ESG factors pose to money market instruments. By combining third-party ESG data with proprietary views, the Adviser creates unique scoring methodologies that it applies to issuers.... The Fund may invest in green commercial paper ... issued by companies that would otherwise be subject to fossil fuel exclusions so long as the Adviser has determined that the proceeds will not be used to finance fossil fuel generation capabilities. In analyzing whether an issuer meets any of the criteria described above, the Adviser may rely upon, among other things, information provided by an independent third party."

It continues, "After applying the above exclusion screens, the Adviser calculates proprietary ESG scores for the remaining issuers based on a number of variables, such as environmental, social, governance, controversy and ESG momentum factors. The Adviser then sets minimum ESG score thresholds. Only issuers with an ESG score above a minimum threshold will be considered for investment by the Fund, thus eliminating those issuers with the lowest ESG performance. The Adviser's minimum ESG score thresholds may be adjusted from time to time, provided that a subset of issuers are always excluded by ESG factors."

Crane Data currently tracks 16 Social, ESG or Veteran MMFs with $43.2 billion (as of 2/28/21). Social or "Impact" MMFs (all Govt MMFs) total $28.4 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), Morgan Stanley Inst Liq Govt Sec Inst (MUIXX, $9.9B) 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 or just went live, including: HSBC ESG Prime, BlackRock's Mischler shares and Invesco's Cavu shares.)

For more on ESG and "Social" MMFs, see these Crane Data News pieces: "JP Morgan Launches "Empower" Share Class to Support Minority Banks" (2/24/21); "MFI Awards for Top Funds of 2020; More on Cavu Securities, ESG MMFs" (1/20/21); "Invesco Files for Cavu Secs Class" (12/18/20); "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).

In other news, we hope you'll join us for Crane's Bond Fund Symposium (Online), which takes place this afternoon and tomorrow (3/25-26) from 1-4pm. 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. See the 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. Recorded sessions and PowerPoints will be available for attendees and subscribers via our "Bond Fund Symposium 2021 Download Center. (Many have already been posted.)

Finally, we've officially pushed back the dates for our big show, Money Fund Symposium, which is now scheduled for Sept. 21-23, 2021 in Philadelphia. After shutting down in-person conferences for over a year, Crane Data is excited to host live events once again. We hope and expect that most travel restrictions will be lifted by fall, but of course stay tuned. Crane's Money Fund Symposium will take place at The Philadelphia Loews Hotel. The preliminary agenda is available and registrations are now being taken. (We'll refund or credit any cancellations for any reason.)

Visit the MF Symposium website for more details. Registration is $750, and discounted hotel reservations are available. We hope you'll join us for today's BFS online and in person for MFS in Philadelphia! We'd like to encourage attendees, speakers and sponsors to register and make hotel reservations early, but we of course understand if you need to wait for travel restrictions to ease. E-mail us at info@cranedata.com to request the full brochure.

Western Asset published the brief, "Segmentation and Horizons Within Short-Term Investment Strategies," which tells us that, "An MMF may be the best solution for cash that requires daily liquidity, but this high level of liquidity comes at a price. Setting an investment time horizon that is too low for your needs will give up valuable yield on the investment—an unwelcome result further pronounced in times of low interest rates.... At the heart of an investment strategy for traditional cash investors, such as corporate treasurers investing excess balance sheet cash, lie the critical interdependent objectives of preserving capital, maintaining adequate liquidity and generating an attractive level of return." (Note: Please join us for Crane's Bond Fund Symposium (Online), which takes place the afternoons (1-4pmET) of March 25-26. Registration is $250 and "comp" tickets are available to sponsors and clients. Contact us or click here to register or for more info.)

They write, "Although these goals will drive cash investment decisions, they often overlook one critical component: time. Only by assigning an investment horizon to balances -- or segments -- of cash can an investor effectively define what is meant by these objectives. Preservation of capital is certainly a worthwhile aim, but it is only really meaningful when applied to a specific time frame. For instance, the question should be asked of whether an investment needs to not lose money from one day to the next, or whether it is more important that the investment not lose money over a rolling time period such as three months. Could the need for liquidity occur on any given day without much warning, or will there likely be some degree of a notice period? By assigning cash balances to different segments with differing time horizons, an investor is able to determine the appropriate level of risk for the overall investment, thus aiming to generate the highest level of return while still meeting the core objectives."

Western explains, "The current low interest rate environment also presents an opportune time to implement a segmentation strategy. Rates in the US remain exceptionally low compared to longer-term averages, meaning liquidity remains expensive. Making an investment with an investment horizon that is too short for your needs represents leaving returns on the table at a time when every basis point of yield is important. Similarly, the corporate credit environment remains robust as demonstrated by the current low level of negative rating changes for investment-grade companies. This suggests that increasing credit risk in an investment may now be prudent."

The paper continues, "It should be noted that when considering an 'up in risk' strategy change, particularly when that move is away from MMFs, yield is not always the same as return. The yield of a strategy represents the income received from the individual bonds held in the portfolio. The return delivered to an investor will only equal the yield if all of the bonds in the portfolio are held to maturity. This is typically the case for MMFs but not, however, for strategies investing in bonds that mature in one year or longer, as the portfolio manager will normally switch out of the bond into an alternative before the bond reaches maturity. For this reason the expected return for short-term strategies other than MMFs may be lower or higher than the quoted yield."

Western adds, "This approach to cash segmentation is only possible with a comprehensive forecast of cash flows. As the total cash balance is expected to fluctuate over time, discrete balances of cash can be aligned to differing investment horizons with associated risk and return objectives represented by distinct investment segments. For example, here's what a cash segmentation approach could look like by the type of funds needed on hand and their associated investment horizons: Operating cash: daily liquidity, Core allocation: 3-6 month horizon [and] Strategic allocation: >6-month horizon."

In other news, Fitch Ratings recently release its "March 2021 U.S. Money Market Funds" summary. They write, "Total taxable money market fund (MMF) assets increased by $44 billion from Jan. 29, 2021 to Feb. 26, 2021, according to iMoneyNet data. Government MMFs gained $61 billion in assets during this period, offset by a $14 billion decrease in prime MMF assets. MMF yields have plateaued at near-zero levels since initially decreasing when the U.S. Federal Reserve cut rates in response to market volatility in March 2020. Institutional government MMF yields have remained unchanged at 0.02% since Dec. 21, 2020 and institutional prime MMF yields have remained at 0.03% since Jan. 13, 2021, per iMoneyNet data."

The report also says, "Prime institutional funds increased their daily liquid assets (DLA) and weekly liquid assets (WLA) when they experienced extreme market volatility in March 2020 and now maintain levels higher than liquidity before. Prime institutional average DLA and WLA increased from 27.4% and 40.7%, on Feb. 28, 2020, to 32.5% and 47.8% on Feb. 26, 2021, respectively, according to Crane Data."

Finally, Crane Data also published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Mar. 19, 2021) includes Holdings information from 93 money funds (down 26 funds from a week ago), which represent $2.740 trillion (up from $1.978 trillion) of the $4.701 trillion (58.3%) 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 $1.462 trillion (up from $1.071 trillion a week ago), or 53.4%, Repurchase Agreements (Repo) totaling $676.1 billion (up from $468.8 billion a week ago), or 24.7% and Government Agency securities totaling $318.3 billion (up from $248.0 billion), or 11.6%. Commercial Paper (CP) totaled $101.8 billion (up from $69.8 billion), or 3.7%. Certificates of Deposit (CDs) totaled $65.0 billion (up from $48.0 billion), or 2.4%. The Other category accounted for $81.3 billion or 3.0%, while VRDNs accounted for $35.4 billion, or 1.3%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.465 trillion (53.5% of total holdings), Federal Home Loan Bank with $158.5B (5.8%), BNP Paribas with $81.9B (3.0%), Fixed Income Clearing Corp with $76.7B (2.8%), Federal Farm Credit Bank with $62.3B (2.3%), RBC with $58.7B (2.1%), Federal National Mortgage Association with $53.3B (1.9%), JP Morgan with $52.4B (1.9%), Federal Home Loan Mortgage Corp with $41.6B (1.5%) and Credit Agricole with $37.0B (1.4%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($209.1 billion), Goldman Sachs FS Govt ($188.0B), BlackRock Lq FedFund ($169.0B), Wells Fargo Govt MM ($136.3B), Fidelity Inv MM: Govt Port ($131.9B), BlackRock Lq T-Fund ($124.9B), Morgan Stanley Inst Liq Govt ($112.9B), JPMorgan 100% US Treas MMkt ($103.5B), Federated Hermes Govt Obl ($103.5B) and Goldman Sachs FS Treas Instruments ($92.2B). (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.)

Comments continue to trickle in in response to the Securities and Exchange Commission's February announcement, "SEC Requests Comment on Potential Money Market Funds Reform Options Highlighted in President's Working Group Report." The latest comment is submitted by Richard Apostolik and Mark Carey of the Global Association of Risk Professionals, or GARP. They write, "Many money market funds were stressed in March 2020 despite changes in regulations and operating procedures made during the decade following stresses in 2007-8. Government money funds performed exceptionally well during March 2020, managing record levels of inflows, but some prime and some muni money funds experienced large redemptions. Given the reoccurrence of stresses earlier this year, fund sponsors and regulators are evaluating strategies and reforms to ensure the money fund industry's resilience in the future." (See the full list of letters here.)

Their letter explains, "The aim of this document is to inform policymakers and corporate decisionmakers of the pros and cons of potential policy responses designed to promote money fund resilience. The pros and cons noted herein for each policy response focus on reasons a particular response might or might not improve money fund resilience for prime and muni money funds (hereinafter collectively referred to as 'money funds'). It should also be noted that certain of the pros and cons may represent issues to consider rather than a specific reason a policy response may or may not work. Irrespective, both should be considered to gain a greater understanding of the points being made."

It continues, "This document was developed with the active input of the asset managers associated with the GARP U.S.-based and European-based Buy Side Risk Managers Forums (collectively the 'Forums'). The Forums (and this document) do not recommend specific policy actions, but instead attempt to provide objective analysis and/or insight. Their goal is to objectively inform policymakers about possible future money fund reforms and to recognize the range of potential consequences of each policy. Participating asset managers' views differ about the best choice or combination of choices among the options analyzed herein and about the relative merits of the pros and cons for any individual option. The next section suggests some foundational and desirable characteristics of any reforms that are chosen. A guide to the remainder of the document follows, and then specific potential reforms with pros and cons."

A section on "Money Market Fund Reforms: Pros, Cons and Options," tells us, "Money funds provide many benefits to investors, the financial system, and the broader economy. Money fund investments are liquid, diversified, and, in contrast to deposits at banks or similar financial institutions, have limited vulnerability to disruption by the failure of the provider. Money funds are highly regulated and transparent. Money funds also provide accounts that allow investments in, and redemptions from, other types of mutual funds. They provide funding to many types of financial and non-financial firms and municipalities. Because they invest in standardized, short-term instruments, they can react quickly to changes in financial markets while simultaneously being a cost-effective way to fund operations, and contribute to the normal functioning of financial markets."

It goes on, "A primary goal of money fund reform following the latest period of stress is to limit (ideally eliminate) money fund instability. A secondary goal is to limit the need for ad hoc government intervention to preserve stability." But, they write, Some of the reforms discussed herein, if adopted, may cause the affected money funds to cease to exist. It is recommended that if a reform effectively leads to money fund elimination, decision-makers simply propose their outright elimination so that a clear debate about costs and benefits of elimination can occur. While elimination may remove a source of financial instability, it will, in all probability, introduce other risks because entities in the real and financial sector currently receiving funding from money funds or investing in money funds would need to find substitutes. The resulting consequences for economic activity and financial stability would be difficult to anticipate and forecast."

The GARP comment also says, "In March 2020, official sector entities and industry participants communicated and cooperated extensively and acted effectively in responding to money fund stresses. However, in the future, ad hoc cooperation might not always work so well. Official sector decision-makers are urged to use the lessons of the past two crises to establish standing arrangements for communication and cooperation with each other and with money market participants (including issuers, asset managers and investors) in preparation for the next period of stress. Such arrangements should at a minimum involve every jurisdiction with a material volume of money funds, should err on the side of being more global rather than less, and should remain nimble."

It explains, "Money funds invested in central government obligations (as opposed to prime and muni funds) performed well in March 2020. While this paper focuses on prime and muni money funds, it is suggested that in evaluating potential reforms, decision-makers think more broadly and consider all money market fund vehicles because the circumstances of the next period of stress may be different."

The posting explains, "Any successful reform proposal or combination of proposals must address both credit and liquidity shocks. Once a crisis is beyond the initial shock, credit and liquidity concerns become intertwined, but the concern that leads to initial redemption decisions by money fund investors at the beginning of a period of stress is usually only one of credit or liquidity. A proposal that addresses only credit or liquidity stress is unlikely to be effective in all future situations."

Apostolik and Carey elaborate, "The vulnerability of money funds arises primarily from two of their characteristics: Money funds are subject to large, rapid redemptions. Somewhat similar to the bank-run dynamic, if a fund investor becomes concerned that other fund investors will redeem en masse, that fund investor may immediately redeem in order to maintain access to their money and to avoid losses associated with rapid liquidation of fund assets to meet redemptions. Certain previous reforms may have also inadvertently created a first-mover advantage, contributing to this dynamic. The details of the run dynamic, such as the triggers, may differ from one episode to the next, but successful reform must address the run dynamic in general."

Finally, they add, "Money fund investors need quick access to balances. Many investors use money funds to store operating capital they may need to access quickly rather than for returns as part of a portfolio diversification strategy. This amplifies investors' alertness to threats to their ability to redeem quickly, especially features such as redemption gates and fees that might mechanically inhibit their ability to redeem (see below for more on gates and fees). Current low costs of redemption and ease of changing from one fund to another also amplify the pressure on money funds during periods of stress."

For more, see our these Crane Data News pieces: "Fermat Comments on PWG Report" (3/10/21) and "Professor Gordon's Nutty PWG Comments: Backs Buffer; Weekly Holdings" (3/3/21).

The Investment Company Institute published, "Worldwide Regulated Open-Fund Assets and Flows, Fourth Quarter 2020," which shows that money fund assets globally rose by $246.3 billion, or 3.1%, in Q4'20 to $8.314 trillion. The increase was driven by big jumps in Chinese, Irish and French money market fund assets, though U.S. MMFs declined. MMF assets worldwide increased by $1.689 trillion, or 25.5%, in the 12 months through 12/31/20, and money funds in the U.S. now represent 52.1% of worldwide assets. We review the latest Worldwide MMF totals, below. (Note: Please join us later this week for Crane's Bond Fund Symposium (Online), which takes place the afternoons (1-4pmET) of March 25-26. Registration is $250 and "comp" tickets are available to sponsors and clients. Contact us or click here to register or for more info.)

ICI's release says, "Worldwide regulated open-end fund assets increased 10.8 percent to $63.06 trillion at the end of the fourth quarter of 2020, excluding funds of funds. Worldwide net cash inflow to all funds was $743 billion in the fourth quarter, compared with $291 billion of net inflows in the third quarter of 2020. The Investment Company Institute compiles worldwide regulated open-end fund statistics on behalf of the International Investment Funds Association (IIFA), the organization of national fund associations. The collection for the fourth quarter of 2020 contains statistics from 46 jurisdictions."

It explains, "The growth rate of total regulated open-end fund assets reported in US dollars was increased by US dollar depreciation over the fourth quarter of 2020. For example, on a US dollar–denominated basis, fund assets in Europe increased by 11.9 percent in the fourth quarter, compared with an increase of 6.8 percent on a euro-denominated basis."

ICI's quarterly continues, "On a US dollar–denominated basis, equity fund assets increased by 15.3 percent to $28.34 trillion at the end of the fourth quarter of 2020. Bond fund assets increased by 6.8 percent to $13.05 trillion in the fourth quarter. Balanced/mixed fund assets increased by 11.6 percent to $7.80 trillion in the fourth quarter.... Money market fund assets increased by 3.1 percent globally to $8.31 trillion."

The release also tells us, "At the end of the fourth quarter of 2020, 45 percent of worldwide regulated open-end fund assets were held in equity funds. The asset share of bond funds was 21 percent and the asset share of balanced/mixed funds was 12 percent. Money market fund assets represented 13 percent of the worldwide total."

ICI adds, "Net sales of regulated open-end funds worldwide were $743 billion in the fourth quarter of 2020. Flows out of equity funds worldwide were $191 billion in the fourth quarter, after experiencing $31 billion of net outflows in the third quarter of 2020. Globally, bond funds posted an inflow of $326 billion in the fourth quarter of 2020, after recording an inflow of $325 billion in the third quarter.... Money market funds worldwide experienced an inflow of $90 billion in the fourth quarter of 2020 after registering an outflow of $196 billion in the third quarter of 2020."

According to Crane Data's analysis of ICI's "Worldwide" fund data, the U.S. sustained its position as the largest money fund market in Q4'20 with $4.333 trillion, or 52.1% of all global MMF assets. U.S. MMF assets decreased by $70.9 billion (-1.6%) in Q4'20 but increased by a huge $892.3 billion (25.9%) in the 12 months through Dec. 31, 2020. China remained in second place among countries overall. China saw assets increase $159.7 billion (14.9%) in Q4, to $1.234 trillion (14.8% of worldwide assets). Over the 12 months through Dec. 31, 2020, Chinese MMF assets have risen by $243.4 billion, or 24.6%.

Ireland remained third among country rankings, ending Q4 with $755.9 billion (9.1% of worldwide assets). Dublin-based MMFs were up $67.8B for the quarter, or 9.9%, and up $156.1B, or 26.0%, over the last 12 months. Luxembourg remained in fourth place with $508.6 billion (6.1% of worldwide assets). Assets there decreased $8.6 billion, or -1.7%, in Q4, and were up $117.5 billion, or 30.0%, over one year. France was in fifth place with $481.4B, or 5.8% of the total, up $54.1 billion in Q4 (12.7%) and up $113.0B (30.7%) over 12 months.

Australia was listed in sixth place with $275.3 billion, or 3.3% of worldwide assets. Its MMFs increased by $1.7 million, or 0.6%, in Q4. Japan was in seventh place with $132.3 billion (1.6%); assets there rose $14.5 billion (12.3%) in Q4 and increased by $27.8 billion (26.6%) over 12 months. Korea, the 8th ranked country, saw MMF assets increase $94 million, or 0.1%, in Q4'20 to $116.2 billion (1.4% of the world's total MMF assets); they've risen $29.9 billion (34.7%) for the year. Brazil was in 9th place, assets increased $2.1 billion, or 2.3%, to $92.5 billion (1.1% of total assets) in Q4. They've increased $11.6 billion (14.3%) over the previous 12 months. ICI's statistics show Mexico in 10th place with $64.3B, or 0.8% of total assets, up $4.2B (6.9%) in Q4 and down $753 million (-1.2%) for the year.

India was in 11th place, increasing $4.3 billion, or 7.1%, to $64.2 billion (0.8% of total assets) in Q4 and increasing $343 million (0.5%) over the previous 12 months. Chinese Taipei ($36.6B, up $3.0B and up $11.7B over the quarter and year, respectively) ranked 12th ahead of Chile ($33.3B, up $9.2B and up $15.1B). Canada ($32.7B, down $114M and up $8.1B) and South Africa ($29.8B up $4.3B and up $5.7B), rank 13th through 15th, respectively. The U.K., Switzerland, Norway, Argentina and Germany round out the 20 largest countries with money market mutual funds.

ICI's quarterly series shows money fund assets in the Americas total $4.570 trillion, down $55.5 billion in Q4. Asian MMFs increased by $184.5 billion to $1.870 trillion, and Europe saw its money funds increase by $184.5 billion in Q4'20 to $1.845 trillion. Africa saw its money funds increase $4.3B to $29.8 billion.

Note that Ireland and Luxembourg's totals are primarily "offshore" money funds marketed to global multinationals, while most of the other countries in the survey have mainly domestic money fund offerings. Contact us if you'd like our latest "Largest Money Market Funds Markets Worldwide" spreadsheet, based on ICI's data. (Let us know too if you'd like to see our latest Money Fund Intelligence International product, which tracks "offshore" money market funds domiciled in Europe and outside the U.S.)

The European Securities and Markets Authority, which regulates European financial markets, published, "ESMA Report on Trends, Risks and Vulnerabilities," which features a section on "Vulnerabilities in money market funds." Author Antoine Bouveret writes, "The intense stress experienced by MMFs in March 2020 has shown that, despite regulatory reforms, MMFs remain subject to vulnerabilities. This article focuses on structural risks and vulnerabilities in the MMF industry." A "Market overview" explains, "The EU MMF industry is diverse across types and currencies. As of November 2020, the size of the EU MMF industry amounted to around EUR 1400 bn according to the ECB, spread across MMF types. LVNAVs and VNAVs each account for 47% and CNAVs for 6% of MMFs. Overall, slightly more than half of EU MMFs offer redeemability at par (CNAVs and LVNAVs). EUR MMFs account for 48% of MMFs, followed by USD (28%) and GBP (24%)."

It goes on, "The EU MMF industry is concentrated mainly in three Member States. Ireland accounts for around 37% of MMFs by size, followed by France (31%) and Luxembourg (30%), with other EU countries accounting for around 2%. By MMF types, there are large differences between countries: LVNAVs are almost all domiciled in Ireland (67%) and Luxembourg (31%), while VNAVs are mainly domiciled in France (59%) and in Luxembourg (26%). Those differences may partly reflect historical factors such as the prohibition of CNAV MMFs in France, accounting issues (VNAVs are presumed to be cash equivalent in France) or different demands from investors. MMFs' portfolio compositions reflect their regulatory type: CNAVs invest almost exclusively in public debt and repo, while LVNAVs and VNAVs are predominantly exposed to CP and CD markets."

In a section on "The role of credit ratings agencies," ESMA comments, "Using a sample of MMFs domiciled in Ireland and Luxembourg, covering around 60% of the EU universe, more than 99% of those MMFs have an MMF rating from at least one of the three CRAs, and more than 80% of MMFs are rated by at least two CRAs. However, in France, very few MMFs are rated, implying that at the EU level the share of rated MMFs is more likely to be around 60%. All rated MMFs have an AAAmmf rating. The use of MMF ratings is related to the predominance of institutional investors, whose investment policy usually restricts them to investing only in MMFs rated AAAmmf by at least two CRAs (IMMFA, 2014). According to the European Commission (2013), the use of MMF ratings was also related to the lack of clear rules around MMFs, except in France, leading investors to rely on external assessments provided by CRAs."

Discussing "Vulnerabilities in the MMF sector," ESMA explains, "In March 2020, some segments of the US and EU MMF industry experienced very high levels of stress. MMFs exposed to private markets (LVNAVs and VNAVs in the EU, prime MMFs in the US) recorded very high outflows, while facing challenges in disposing of their assets due to the lack of liquidity in CP and CD markets. Following actions by central banks to support money markets, redemptions slowed while liquidity improved in money markets. No EU or US MMFs had to implement fees or gates or suspend redemptions. However, this episode shows that MMFs remain subject to a range of vulnerabilities. Those vulnerabilities can be split across a few dimensions: (i) liquidity of underlying markets, (ii) regulatory requirements, (iii) role of CRAs and (iv) investor behaviour."

They tell us, "MMFs are exposed to three intertwined challenges regarding liquidity on their asset side: MMFs have a large market footprint in the asset classes they invest in; those markets are not very liquid even in normal times; and MMFs have a high degree of portfolio overlap. MMFs have a very large market footprint in private money markets. As of February 2020, US prime MMF and USD LVNAVs and VNAVs exposures amounted to around one third of the US CP market. More importantly, those MMFs held more than half of the CP issued by financial institutions, including 82% of all CP issued by foreign financial institutions. The footprint is lower in other currencies but still substantial: MMFs hold more than 50% of the EUR and GBP financial CP markets, although precise estimates are challenging because of limited transparency in some segments of the European CP market."

Bouveret states, "The limited absorption capacity of the CP market was tested in March, as MMFs sold instruments to meet investor redemptions. We estimate that USD MMFs (US prime and EU USD MMFs) sold more than USD 50bn of financial CP, more than five times average dealer inventories. Over the same period the yield on CP surged by almost 100 bps. Similar patterns were also observed in EUR CP markets, with MMFs selling around EUR 18bn of CP, while yields rose by 30 bps."

He explains, "The combination of those three characteristics (large market footprint, high degree of overlap and low liquidity in underlying markets) makes MMFs particularly vulnerable to symmetric shocks. If several MMFs face large redemptions at the same time, they are likely to try to sell the same type of assets simultaneously. Given the limited absorption capacity of the underlying asset market, such sales will be challenging to execute, thereby creating liquidity issues for MMFs."

Bouveret also tells us, "During periods of stress, LVNAVs are likely to face challenges to meet all those constraints at the same time. [A chart] shows three MMFs that faced very high outflows in March (more than 10% in 2 weeks).... To meet those redemptions, funds can sell their most liquid assets, but that will result in a decline in WLA ... and a risk of breaching the 30% requirement. Funds can also choose to dispose of less-liquid assets, but in that case the sales could result in mark-to-market losses. Such losses will lead to a deviation between the mark-to-market NAV and the constant NAV. Although no LVNAV breached the 20 bps collar in March, a few funds were close to the threshold, with one fund having an 18 bps deviation."

ESMA's "Conclusion" states, "MMFs are an integral part of the EU financial system, as they provide maturity and liquidity transformation. However, despite important regulatory reforms, the COVID-19 crisis has shown that vulnerabilities remain. The evidence related to these vulnerabilities presented in this article can serve as input to the currently ongoing discussions on MMF regulatory reforms."

It continues, "On the asset side, EU MMFs have a very large market footprint in short-term private markets with limited liquidity. MMFs tend to have similar exposures, implying that, in the event of a wave of redemptions, MMFs would struggle to dispose of their assets. On the liability side, investors consider MMFs cash-like instruments and expect daily liquidity with very limited risks. Such expectations might make MMFs vulnerable to runs."

Finally, ESMA writes, "In addition, some regulatory provisions regarding liquidity management tools (such as the use of fees and gates) might create incentives for investors to redeem ahead of others, for example to avoid being subject to fees and gates. Methodologies used by CRAs could also reduce managers' flexibility, especially during times of stress, as managers may want to limit the probability of an MMF rating downgrade."

The Securities and Exchange Commission's latest monthly "Money Market Fund Statistics" summary shows that total money fund assets increased by $30.5 billion in February to $4.848 trillion. (Month-to-date in March assets are flat, decreasing $2.5 billion through 3/16, according to our MFI Daily.) The SEC shows that Prime MMFs fell by $29.2 billion in February to $920.7 billion, Govt & Treasury funds increased $64.3 billion to $3.817 trillion and Tax Exempt funds decreased $4.6 billion to $110.2 billion. Yields were flat or lower in again in February. 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. (Note: Please join us for next week's Bond Fund Symposium (Online), which will take place the afternoons of March 25-26. Registration is $250 and "comp" tickets are available to sponsors and select clients. Contact us or click here for more info.)

February's overall asset increase follows an increase of $35.4 billion in January, 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 2/28/21, total MMF assets have increased by an impressive $813.7 billion, or 20.2%, 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 assets in its collections.)

The SEC's stats show that of the $4.848 trillion in assets, $920.7 billion was in Prime funds, down $29.2 billion in February. This follows an increase of $36.4 billion in January, and 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 19.0% of total assets at the end of February. They've decreased by $189.6 billion, or -17.1%, over the past 12 months.

Government & Treasury funds totaled $3.817 trillion, or 78.7% of assets. They increased $64.3 billion in February, after decreasing $2.0 billion in January, increasing $19.2 billion in December, $27.7 billion in November, 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 $1.033 trillion over 12 months, or 37.1%. Tax Exempt Funds decreased $4.6 billion to $110.2 billion, or 2.3% of all assets. The number of money funds was 339 in February, down two from the previous month, and down 28 funds from a year earlier.

Yields for Taxable MMFs were flat or down in February. Steady declines over the past 23 months follow 25 months of straight increases. The Weighted Average Gross 7-Day Yield for Prime Institutional Funds on February 28 was 0.13%, down two basis points from the previous month. The Weighted Average Gross 7-Day Yield for Prime Retail MMFs was 0.18%, down two basis points. Gross yields were 0.10% for Government Funds, down two basis points from last month. Gross yields for Treasury Funds were down three basis points at 0.09%. Gross Yields for Muni Institutional MMFs were flat at 0.07% in February. Gross Yields for Muni Retail funds were down two basis points at 0.12% in February.

The Weighted Average 7-Day Net Yield for Prime Institutional MMFs was 0.08%, down two basis points from the previous month and down three basis points since 12/31/20. The Average Net Yield for Prime Retail Funds was 0.02%, down a basis point from from the previous month, and down a basis point 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 unchanged from January at 0.02%. Net Yields for Muni Retail funds were unchanged at 0.01% in February. (Note: These averages are asset-weighted.)

WALs and WAMs were mixed in February. The average Weighted Average Life, or WAL, was 62.7 days (up 0.3 days from last month) for Prime Institutional funds, and 51.5 days for Prime Retail funds (up 2.7 days). Government fund WALs averaged 96.3 days (down 3.3 days) while Treasury fund WALs averaged 99.8 days (up 2.1 days). Muni Institutional fund WALs were 15.5 days (up 0.6 days from the previous month), and Muni Retail MMF WALs averaged 26.4 days (down 0.5 days).

The Weighted Average Maturity, or WAM, was 43.4 days (down 1.3 days from the previous month) for Prime Institutional funds, 44.7 days (up 2.2 days from the previous month) for Prime Retail funds, 45.4 days (down 2.0 days) for Government funds, and 48.8 days (up 0.5 days) for Treasury funds. Muni Inst WAMs were up 0.7 days to 15.0 days, while Muni Retail WAMs increased 0.2 days to 25.6 days.

Total Daily Liquid Assets for Prime Institutional funds were 51.3% in February (down 0.3% from the previous month), and DLA for Prime Retail funds was 31.5% (up 2.6% from previous month) as a percent of total assets. The average DLA was 65.8% for Govt MMFs and 94.0% for Treasury MMFs. Total Weekly Liquid Assets was 63.3% (down 1.7% from the previous month) for Prime Institutional MMFs, and 46.6% (up 0.4% from the previous month) for Prime Retail funds. Average WLA was 80.6% for Govt MMFs and 98.5% for Treasury MMFs.

In the SEC's "Prime Holdings of Bank-Related Securities by Country table for February 2021," the largest entries included: Canada with $112.4 billion, France with $84.1 billion, Japan with $76.2 billion, the U.S. with $67.3B, Germany with $44.7B, the U.K. with $40.0B, the Netherlands with 38.0B, Aust/NZ with $26.4B and Switzerland with $16.5B. The biggest gainers among the "Prime MMF Holdings by Country" were: the U.K. (up $9.4 billion), Japan (up $4.9B), Germany (up $2.7B), Aust/NZ (up $2.2B) and the Netherlands (up $0.2B). The biggest decreases were: Canada (down $4.8B), the U.S. (down $3.2B), France (down $1.7B) and Switzerland (down $0.2B).

The SEC's "Prime Holdings of Bank-Related Securities by Region" table shows Europe had $115.9B (up $8.8B from last month), the Eurozone subset had $181.4B (up $3.0B). The Americas had $180.1 billion (down $8.0B), while Asia Pacific had $114.1B (up $5.7B).

The "Prime MMF Aggregate Product Exposures" chart shows that of the $921.6B billion in Prime MMF Portfolios as of February 28, $310.7B (33.7%) was in Government & Treasury securities (direct and repo) (down from $347.3B), $245.7B (26.7%) was in CDs and Time Deposits (up from $238.7B), $182.3B (19.8%) was in Financial Company CP (up from $179.9B), $138.8B (15.1%) was held in Non-Financial CP and Other securities (up from $137.6B), and $44.1B (4.5%) was in ABCP (down from $46.5B).

The SEC's "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.S. with $198.3 billion, Canada with $151.7 billion, France with $209.1 billion, the U.K. with $90.3 billion, Germany with $23.6 billion, Japan with $142.4 billion and Other with $42.2 billion. All MMF Repo with the Federal Reserve was down $2.7 billion in February at $2.7 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.6%, Prime Retail MMFs with 3.9%, Muni Inst MMFs with 1.1%, Muni Retail MMFs with 2.7%, Govt MMFs with 14.9% and Treasury MMFs with 13.5%.

Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds inched lower over the last month to $1.000 trillion, following a drop in January and big gains in 2020. These U.S.-style funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, decreased by $17.3 billion over the last 30 days (through 3/11); they're down $62.3 billion (-5.9%) year-to-date. Offshore US Dollar money funds, which broke over $500 billion in January 2020, are down $7.7 billion over the last 30 days and are down $17.4 billion YTD to $521.6 billion. Euro funds are down E4.4 billion over the past month, and YTD they're down E22.3 billion to E134.6 billion. GBP money funds have fallen by L3.4 billion over 30 days, and are down by L14.1 billion YTD to L242.8B. U.S. Dollar (USD) money funds (193) 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 (116) total 29.4%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers last Friday), below.

Offshore USD MMFs yield 0.03% (7-Day) on average (as of 03/11/21), 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 0.01%, 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 02/28/21, show that European-domiciled US Dollar MMFs, on average, consist of 23.6% in Commercial Paper (CP), 16.2% in Certificates of Deposit (CDs), 10.6% in Repo, 32.0% in Treasury securities, 16.6% in Other securities (primarily Time Deposits) and 1.0% in Government Agency securities. USD funds have on average 31.0% of their portfolios maturing Overnight, 8.3% maturing in 2-7 Days, 13.0% maturing in 8-30 Days, 15.0% maturing in 31-60 Days, 11.7% maturing in 61-90 Days, 16.4% maturing in 91-180 Days and 4.6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (38.2%), France (13.5%), Canada (8.3%), Japan (7.4%), Sweden (6.2%), Germany (4.2%), the Netherlands (4.2%), the U.K. (3.5%), Belgium (2.5%) and Australia (2.0%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $177.9 billion (32.0% of total assets), Credit Agricole with $17.0B (3.1%), BNP Paribas with $16.1B (2.9%), RBC with $14.1B (2.5%), Mizuho Corporate Bank Ltd with $12.5B (2.3%), KBC Group NV with $12.2B (2.2%), Societe Generale with $12.0B (2.2%), Svenska Handelsbanken with $11.0B (2.0%), Skandinaviska Enskilda Banken AB with $10.4B (1.9%) and Canadian Imperial Bank of Commerce with $10.2B (1.8%).

Euro MMFs tracked by Crane Data contain, on average 36.0% in CP, 19.5% in CDs, 26.9% in Other (primarily Time Deposits), 12.0% in Repo, 5.0% in Treasuries and 0.6% in Agency securities. EUR funds have on average 32.6% of their portfolios maturing Overnight, 7.2% maturing in 2-7 Days, 13.1% maturing in 8-30 Days, 16.0% maturing in 31-60 Days, 11.4% maturing in 61-90 Days, 15.7% maturing in 91-180 Days and 3.9% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (36.0%), Japan (12.2%), the U.S. (9.7%), Sweden (7.0%), Switzerland (5.0%), Belgium (4.9%), Germany (4.0%), the U.K. (3.5%), Canada (3.2%) and the Supranational (2.8%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E9.2B (7.5%), BPCE SA with E7.3B (5.9%), BNP Paribas with E6.7B (5.5%), Societe Generale with E5.5B (4.5%), Republic of France with E5.2B (4.3%), Mizuho Corporate Bank Ltd with E4.5B (3.7%), Svenska Handelsbanken with E4.2B (3.4%), Citi with E4.1B (3.4%), KBC Group NV with E3.8B (3.1%) and Zürcher Kantonalbank with E3.7B (3.0%).

The GBP funds tracked by MFI International contain, on average (as of 02/28/21): 37.6% in CDs, 19.4% in CP, 19.5% in Other (Time Deposits), 20.6% in Repo, 2.7% in Treasury and 0.4% in Agency. Sterling funds have on average 34.1% of their portfolios maturing Overnight, 8.4% maturing in 2-7 Days, 10.0% maturing in 8-30 Days, 14.5% maturing in 31-60 Days, 9.7% maturing in 61-90 Days, 16.3% maturing in 91-180 Days and 7.0% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (20.2%), the U.K. (18.2%), Japan (14.4%), Canada (11.0%), the U.S. (5.9%), Sweden (4.2%), Switzerland (4.1%), the Netherlands (3.7%), Australia (3.3%), and Spain (2.6%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L18.2B (8.9%), Mizuho Corporate Bank Ltd with L9.4B (4.6%), BNP Paribas with L9.3B (4.5%), RBC with L9.0B (4.4%), Mitsubishi UFJ Financial Group Inc with L7.9B (3.9%), Agence Central de Organismes de Securite Sociale with L7.6B (3.7%), Standard Chartered Bank with L7.4B (3.6%), BPCE SA with L7.3B (3.6%), Sumitomo Mitsui Banking Corp with L7.1B (3.5%) and Credit Agricole with L6.4B (3.1%).

Crane Data also published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Mar. 12, 2021) includes Holdings information from 67 money funds (down 4 funds from two weeks ago), which represent $1.978 trillion (down from $2.082 trillion) of the $4.701 trillion (42.1%) 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 $1.071 trillion (down from $1.082 trillion two weeks ago), or 54.2%, Repurchase Agreements (Repo) totaling $468.8 billion (down from $532.8 billion two weeks ago), or 23.7% and Government Agency securities totaling $248.0 billion (down from $261.6 billion), or 12.5%. Commercial Paper (CP) totaled $69.8 billion (down from $73.1 billion), or 3.5%. Certificates of Deposit (CDs) totaled $48.0 billion (down from $53.1 billion), or 2.4%. The Other category accounted for $49.3 billion or 2.5%, while VRDNs accounted for $21.2 billion, or 1.1%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.075 trillion (54.4% of total holdings), Federal Home Loan Bank with $128.6B (6.5%), BNP Paribas with $61.2B (3.1%), RBC with $51.4B (2.6%), Federal Farm Credit Bank with $46.2B (2.3%), Federal National Mortgage Association with $41.9B (2.1%), Fixed Income Clearing Corp with $41.0B (2.1%), JP Morgan with $38.3B (1.9%), Federal Home Loan Mortgage Corp with $28.9B (1.5%) and Mitsubishi UFJ Financial Group Inc with $27.8B (1.4%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($222.1 billion), Goldman Sachs FS Govt ($180.0B), Wells Fargo Govt MM ($142.0B), Fidelity Inv MM: Govt Port ($132.1B), Morgan Stanley Inst Liq Govt ($114.7B), JPMorgan 100% US Treas MMkt ($98.2B), Dreyfus Govt Cash Mgmt ($94.3B), Goldman Sachs FS Treas Instruments ($85.0B), First American Govt Oblg ($82.2B) and State Street Inst US Govt ($76.0B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

The Investment Company Institute kicked off its virtual 2021 Mutual Funds and Investment Management Conference yesterday with a Keynote Address from new President and CEO Eric Pan. Pan discussed money market funds and potential future regulations throughout his remarks, telling us, "I would like to speak with you today about the discussions that US and international policymakers are having about the March 2020 market turmoil and their work to make the financial markets more resilient in the face of a similar liquidity shock. Such work is taking place in international bodies such as the Financial Stability Board (FSB) and International Organization of Securities Commissions, with the active participation of US financial regulators."

He continues, "For those familiar with the regulatory debates following the 2007–2009 global financial crisis, these discussions should give you a sense of déjà vu. Regulated funds, including money market funds and long-term open-end funds, such as bond funds, are being closely scrutinized for systemic vulnerabilities. Indeed, some commentators have gone as far as to argue that the market events of March 2020 indicate that the business models of these funds should fundamentally change because they contend that these funds are unsafe for the global financial system in the absence of a central bank liquidity backstop."

Pan comments, "Although US Treasury securities are usually a safe haven for market participants during times of market stress, data indicate that investors were selling Treasury bonds in early March 2020, signaling that the Treasury market was becoming dislocated. This dislocation began in advance of redemption pressure on money market funds. Numerous factors appear to have contributed to this aberrant behavior, ranging from market participants rebalancing positions to account for changing market conditions to capital requirements for banks."

He explains, "Money market funds and bond mutual funds are, of course, inextricable components of the financial system. However, they did not trigger the stresses in the financial markets. This observation is important because, as regulators consider what reforms may be needed, they should prioritize examining the factors that created the stresses and, only after identifying and addressing those factors, consider necessary policy reforms for regulated funds."

Discussing "Considerations for Policymakers and Regulators," Pan comments, "First, policymakers and regulators should acknowledge the importance of nonbank financial intermediation to the global financial system. This includes the vital role of money market funds, long-term open-end funds, and other regulated funds -- particularly in jurisdictions with robust capital markets. Capital markets are powerful engines of economic growth and innovation, especially today as the world looks to the capital markets to finance a more sustainable future."

He continues, "Money market funds especially are a liquid and diversified cash management tool for investors and a key source of funding for governments and the private sector. At the end of last year, US-regulated money market funds held $3.9 trillion in short-term Treasury and agency securities and repurchase agreements, along with $414 billion in short-term municipal debt, bank certificates of deposit, and commercial paper. Money market funds accounted for 17 percent of the commercial paper market, which is an important source of short-term funding for banks and other financial institutions that provide funding for US households and businesses."

In a section on "Money Market Funds," Pan says, "Last fall, the FSB began the important process of reviewing and assessing the market events of March 2020, with specific focus on money market funds as significant participants in the short-term funding markets. In December, the President's Working Group on Financial Markets issued a report discussing 10 reform measures that policymakers could consider to improve the resilience of money market funds and the broader short-term funding markets. In recognition of the importance of money market funds to investors and the economy, ICI and its members have devoted significant time and effort over the years to considering how to make these funds more robust under even the most adverse market conditions -- goals we share with the Securities and Exchange Commission (SEC) and other policymakers."

He states, "Three principles have always guided our analysis of money market fund reform proposals: First, given the tremendous benefits that money market funds provide to investors and the economy, it is imperative to preserve this product's essential characteristics. Second, in devising a solution, we need to stay focused on the objective that policymakers are seeking to achieve. This objective is to strengthen money market funds even further against adverse market conditions and to enable them to meet extraordinarily high levels of redemption requests. Finally, any solution must be designed to promote this important policy goal while minimizing the potential for unintended negative consequences."

Pan also says, "With these principles in mind, we have found that a number of the reform options that have been proposed suffer from significant drawbacks -- ranging from potential detrimental impacts on money market funds, their investors, and the markets, to complicated regulatory, structural, and operational hurdles. For example, one proposal would be to introduce swing pricing to money market funds. To make swing pricing work, however, funds would have to eliminate popular features such as same-day settlement and multiple NAV strikes, reducing the utility of the product to investors without necessarily reducing the incentives for investors to redeem during times of stress."

He tells the MFIMC, "Another example is the use of capital buffers. Capital buffers would negatively affect money market fund yields, making such funds not commercially viable, while they are unlikely to offer any substantial protection during a liquidity crisis, such as the one we had last March. For those who remember the debate about money market funds between 2012 and 2014, the potential policy options should evoke some strong memories. Many were considered back then and, in several cases, rejected by the SEC itself. Therefore, it should not surprise regulators that some of these options remain problematic even today."

He continues, "On the other hand, at least one option could prove useful. Removing the tie between money market fund liquidity and fee and gate thresholds could address policymakers' concerns with the least negative impact. The run risk that regulators appropriately worry about is exacerbated by these bright lines in regulation where market participants find themselves trying to stay on one side of the line."

Finally, Pan adds, "ICI's analysis indicates that, as the weekly liquid assets of particular prime money market funds fell toward 30 percent, investors were increasingly likely to redeem. Investors apparently reacted to the mere possibility that funds had the legal authority to impose fees and gates rather than the probability that they would do so. Thus, the 30 percent weekly liquid asset requirement, combined with the possibility of fees and gates, created a bright line that investors sought to avoid despite the fact that these funds still had plentiful weekly liquidity."

The March issue of our Bond Fund Intelligence, which was sent to subscribers Friday morning, features the lead story, "ICI Says Bond Fund Outflows Measured; No Need for Regs," which quotes from a Viewpoints piece written by Chief Economist Sean Collins; and "BIS Examines Bond ETF Arbitrage; Pros and Cons," which highlights a bond ETF chapter in the Bank For International Settlements' recent Quarterly Review. BFI also recaps the latest Bond Fund News and includes our Crane BFI Indexes, which show that bond fund returns and yields fell in February. 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, and see below for more on our upcoming Bond Fund Symposium Online, March 25-26.)

BFI's "ICI: Bond Funds" piece reads, "ICI tackles the topic of runs on bond mutual funds in a new paper, 'Bond Mutual Fund Outflows: A Measured Investor Response to a Massive Shock.' Written by Chief Economist Sean Collins, the piece explains, 'In recent months, we have seen many high-profile analyses arguing that bond mutual funds amplified stresses in financial markets during the start of the COVID-19 pandemic in March 2020. These analyses conclude that bond mutual funds therefore may require structural regulatory reforms. But as the information in this ICI Viewpoints and others to follow indicates, policymakers should not jump to that hasty conclusion.'"

BFI quotes ICI, "In a series of posts, we will demonstrate that the evidence about what happened to financial markets in March 2020 is still far too mixed and preliminary to conclude that new regulation is appropriate for bond mutual funds. Given the importance of bond mutual funds to retail investors and to the US and global economies, it is critical that we have all the data and insights—measured and applied correctly—before regulators start considering policy recommendations to reform these funds."

Our BIS Bond ETF article explains, "The Bank For International Settlements' latest BIS Quarterly Review includes a chapter on 'The anatomy of bond ETF arbitrage,' which discusses the differences between bond and stock ETFs and the challenges and risks involved. BIS summarizes, 'Exchange-traded funds (ETFs) allow a wide range of investors to gain exposure to a variety of asset classes. They rely on authorised participants (APs) to perform arbitrage, ie align ETFs’ share prices with the value of the underlying asset holdings. For bond ETFs, prominent albeit understudied features of the arbitrage mechanism are systematic differences between the baskets of bonds used to create and redeem ETF shares, and a low overlap between these baskets and actual asset holdings. These features could reflect the illiquid nature of bond trading, ETFs’ portfolio management and APs' incentives. The decoupling of baskets from holdings weakens arbitrage forces but allows ETFs to absorb shocks on the bond market.'"

The BIS explains, "Recent trends and market developments call for a closer analysis of bond ETFs. First, bond ETFs have been growing steadily over the past few years and now manage more than $1.2 trillion of assets across the globe.... Second, the Federal Reserve's corporate bond purchase programme launched in 2020 involves interventions in the bond market through ETFs. Third, the difference between ETF share prices and [NAVs] of the underlying holdings ... fluctuated more strongly for bond than for equity ETFs during March-April 2020. This highlighted that features specific to the bond market can have an impact on the pricing of bond ETFs."

A News brief, "Returns and Yields Fall in February," tells readers, "Bond fund yields were mostly lower and returns were down last month. Our BFI Total Index fell 0.65% over 1-month but increased 2.74% over 12 months. The BFI 100 fell 0.75% in Feb. but rose 3.16% over 1 year. Our BFI Conservative Ultra-Short Index returned 0.04% over 1-mo and 1.01% over 1-yr; Ultra-Shorts averaged 0.05% in Feb. and 1.20% over 12 mos. Short-Term returned 0.01% and 2.86%, and Intm-Term plunged 1.07% last month but rose 3.06% over 1-year. BFI's Long-Term Index returned -1.66% in Feb. and 3.06% over 1-year. Our High Yield Index gained 0.38% in Feb. and 6.65% over 1-yr."

Another News brief quotes Investment News', "Vanguard's first active bond ETF has 'disruption' written all over it." They tell us, "The upcoming launch of the Vanguard Ultra-Short Bond ETF ... represents a disruptive new competitor in the area of cash-alternative ETFs. The new fund, which is expected to be available within the next four months, is an ETF version of the $16.8 billion Vanguard Ultra-Short-Term Bond Admiral mutual fund (VUSFX), which launched in 2015."

In a third News update, the WSJ writes, "Treasury Rout Pushes Bond Funds Into Risker Assets." They comment, "Optimism about economic recovery has triggered a selloff in U.S. Treasurys that is pushing fixed-income investors to run for cover in some unlikely havens. Fund managers are bulking up on junk bonds, corporate loans, equity-linked bonds and even stocks ... while selling assets that trade more in line with government debt."

Finally, BFI says in a sidebar, "Fidelity Launches Two New Active Bond ETFs." It begins, "Fidelity Expands Active ETF Lineup with Launch of Two Active Bond ETFs,' says a press release. The announcement explains, 'Fidelity Investments today announced the launch of two new active bond exchange-traded funds (ETFs) -- Fidelity Investment Grade Bond ETF (FIGB) and Fidelity Investment Grade Securitized ETF (FSEC). Both funds are available commission-free for individual investors and financial advisors through Fidelity’s online brokerage platforms. The new actively-managed bond ETFs are competitively priced with total expense ratios of 0.36%. With this launch, Fidelity now manages 39 ETFs with more than $25 billion in assets.'"

As a reminder, 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 has been pushed back to Sept. 21-23, 2021, in Philadelphia.

The Federal Reserve released its latest quarterly "Z.1 Financial Accounts of the United States" statistical survey (a.k.a. "Flow of Funds") Thursday. Among the 4 tables it includes on money market mutual funds, the Fourth Quarter 2020 edition shows that Total MMF Assets decreased by $74 billion to $4.336 trillion in Q4'20. The Household Sector, by far the largest investor segment with $2.419 trillion, saw assets drop in Q4, after a massive buildup in the first half of 2020. The second largest segment, Nonfinancial Corporate Businesses, also experienced a drop in assets. The Fed's latest Z.1 numbers, which contain one of the few looks at money fund investor segments available, also show asset decreases in MMF holdings for the Other Financial Business (formerly Funding Corps) and Life Insurance Companies categories in Q4 2020.

Private Pension Funds, the Rest of the World and State & Local Governments also saw small asset decreases in Q4. No segments increased over the last quarter, but the Nonfinancial Noncorporate Business, Property-Casuality Insurance and State&Local Govt Retirement sectors remained unchanged. Over the past 12 months, the Nonfinancial Corporate Businesses, Household Sector and Other Financial Business showed the biggest asset increases. Every category except Property-Casualty Insurance and the Rest of the World saw increases over the past year.

The Fed's "Table L.206," "Money Market Mutual Fund Shares," shows that total assets decreased by $74 billion, or -1.7%, in the fourth quarter to $4.336 trillion. For all of 2020, assets were up $693 billion, or 19.0%. The largest segment, the Household sector, totals $2.419 trillion, or 55.8% of assets. The Household Sector fell by $49 billion, or -2.0%, in the quarter. Over the past 12 months through Q4'20, Household assets were up $215 billion, or 9.7%.

Nonfinancial Corporate Businesses, the second-largest segment according to the Fed's data series, held $916 billion, or 21.1% of the total. Assets here fell by $11 billion in the quarter, or -1.2%, but they've increased by $358 billion, or 64.1%, over the past year. Other Financial Business was the third-largest investor segment with $443 billion, or 10.2% of money fund shares. They fell by $6 billion, or -1.3%, in the latest quarter. Other Financial Business has increased by $105 billion, or 31.1%, over the previous 12 months.

The fourth-largest segment, Private Pension Funds , held $162 billion (3.7%). The Rest of the World, was the 5th largest category with 2.9% of money fund assets ($127 billion); it was down by $2 billion (-1.7%) for the quarter and down $2 billion, or -1.9% over the last 12 months. The Nonfinancial Noncorporate Business remained sixth place in market share among investor segments with 2.8%, or $120 billion, while Life Insurance Companies held $71 billion (1.6%), State and Local Governments held $32 billion (0.7%), State and Local Government Retirement Funds held $24 billion (0.5%), Property-Casualty Insurance also held $24 billion (0.6%) according to the Fed's Z.1 breakout.

The Fed's "Flow of Funds" Table L.121 shows "Money Market Mutual Funds" largely invested in "Debt Securities," or Credit Market Instruments, with $3.185 trillion, or 73.5% of the total. Debt securities includes: Open market paper ($173 billion, or 4.0%; we assume this is CP), Treasury securities ($2.256 trillion, or 52.0%), Agency and GSE-backed securities ($630 billion, or 14.5%), Municipal securities ($113 billion, or 2.6%) and Corporate and foreign bonds ($13 billion, or 0.3%).

Other large holdings positions in the Fed's series include Security repurchase agreements ($1.006 trillion, or 23.2% of total assets) and Time and savings deposits ($141 billion, or 3.2%). Money funds also hold minor positions in Miscellaneous assets ($11 billion, or 0.2%), Foreign deposits ($1 billion, 0.0%) and Checkable deposits and currency (-$7 billion, -0.2%). Note: The Fed also lists "Variable Annuity Money Funds," which currently total $41 billion.

During Q4, Debt Securities were down $105 billion. This subtotal included: Open Market Paper (down $5 billion), Treasury Securities (down $19 billion), Agency- and GSE-backed Securities (down $70 billion), Corporate and Foreign Bonds (down $4 billion) and Municipal Securities (down $9 billion). In the fourth quarter of 2020, Security Repurchase Agreements were up $9 billion, Foreign Deposits were flat, Checkable Deposits and Currency were up $67 billion, Time and Savings Deposits were down by $40 billion, and Miscellaneous Assets were down $5 billion.

Over the 12 months through 12/31/20, Debt Securities were up $1.004 trillion, which included Open Market Paper down $64B, Treasury Securities up $1.220T, Agencies down $125B, Municipal Securities (down $21), and Corporate and Foreign Bonds (down $6B). Foreign Deposits were down $7B, Checkable Deposits and Currency were down $9B, Time and Savings Deposits were down $118B, Securities repurchase agreements were down $169B and Miscellaneous Assets were flat.

Note that the Federal Reserve changed its numbers related to money market funds substantially in the second quarter of 2018. Its "Release Highlights Second Quarter 2018" tells us, "New source data for money market funds from the U.S. Securities and Exchange Commission's (SEC) form N-MFP have been incorporated into the sector's asset holdings (tables F.121 and L.121). Money market funds not available to the public, which are included in the SEC data, are excluded from Financial Accounts' estimates. Data revisions begin 2013:Q1. Holdings of money market fund shares by households and nonprofit organizations, state and local governments, and funding corporations (tables F.206 and L.206) have been revised due to a change in methodology based on detail from the Investment Company Institute. Data revisions begin 1976:Q1."

Two weeks from today, Crane Data will host its fourth annual Bond Fund Symposium, which will take place online the afternoons of March 25 and 26. We cancelled last year's event, which had been scheduled to take place in Boston in late March. Governments and businesses locked down travel and events due to fears over the coronavirus almost exactly one year ago, triggering the money market mayhem we've since labelled as the March Madness. It's been a crazy and difficult year for everyone, but it's been particularly rough on the conference and the cash business. Below, we review our upcoming virtual show, and we also review the events of last March. We hope all are healthy and well and we look forward to a return to normalcy, travel and in-person conferences in coming months.

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.

Our BF Symposium Agenda kicks off on Thursday, March 25 with "Bond Market Strategists: Rates, Risks, Spreads" featuring Ira Jersey of Bloomberg Intelligence, Alex Roever of J.P. Morgan Securities and Michael Cloherty of UBS. The rest of the Day 1 agenda includes: "Short & Shorter: Ultra‐Shorts vs. SMAs, ESG," with Dave Martucci of J.P. Morgan A.M., and Jerome Schneider of PIMCO; "ESG & ETF Issues in the Bond Fund Space" with Henry Shilling of Sustainable Research & Analysis and James McNerny of JPMAM; and, a "Senior Portfolio Manager Perspectives" panel with Brett Davis of BlackRock, Joanne Driscoll of Putnam Investments and Dave Rothweiler of UBS Asset Management.

Day 1 also features the pre-recorded sessions: "Major Issues in Fixed-Income Investing" with Logan Miller of Wells Fargo Securities, Matthew Brill of Invesco and Morten Olsen of Northern Trust A.M.; and "ETF and Near-Cash ETF Trends," with Brian McMullen of Invesco. (These sessions will be available for attendees via our Content Center following the live sessions, and all the sessions and materials will be available to Crane Data Subscribers)

Day 2 of BFS features: "State of the Bond Fund Marketplace" with Peter Crane of Crane Data and Shelly Antoniewicz of the Investment Company Institute; "Regulatory Update: Latest Bond Fund Issues," with Aaron Withrow of Dechert, and Jamie Gershkow of Stradley Ronon Stevens & Young; a "Government Bond Market & Fund Discussion" with Sue Hill of Federated Investors and Bloomberg's Ira Jersey; a "Municipal Bond Market Overview" with Kristian Lind of Neuberger Berman and J.R. Rieger of the Rieger Report; and, "Bond Fund Tools & Data" with our Peter Crane.

Day 2 also features the pre-recorded sessions: "Money Fund Update & Conservative USBFs" featuring Crane and Kerry Pope of Fidelity Investments and "US Bond Funds Ratings & LGIP Market Update," with Peter Gargiulo of Fitch Ratings and Emelyne Uchiyama of S&P Global Ratings.

After shutting down in-person conferences for over a year, Crane Data is excited to host live events again, starting with our big show Money Fund Symposium. While MFS is currently scheduled for June 23-25, 2021, we are preparing to push it back to Sept. 20-21, 2021, when we think more people will be able to travel and most restrictions should be lifted. Crane's Money Fund Symposium will take place at The Loews Hotel, in Philadelphia, Pa. The preliminary agenda is available and registrations are now being taken. (We expect travel to be safe by fall, but we'll refund or credit any cancellations for any reason.)

Visit the MF Symposium website for more details, and watch for the agenda to be tweaked once we've confirmed the new Sept. 20-21 dates. Registration is $750, and discounted hotel reservations are available. We hope you'll join us in person in Philadelphia! We'd like to encourage attendees, speakers and sponsors to register and make hotel reservations early, but we of course understand if you need to wait for travel restrictions to ease. E-mail us at info@cranedata.com to request the full brochure.

We're also preparing for our next European Money Fund Symposium, scheduled for Oct. 21-22, 2021, in Paris, France, but this show could shift if travel in Europe is slow to return. Finally, mark your calendars for next year's Money Fund University "basic training" event, Jan. 20-21, 2022, in Boston, Mass. Let us know if you'd like more details on any of our events, and we hope to see you virtually at BFS, or live in Philadelphia or Paris later this year!

Little did we know last year that the cancellation of Bond Fund Symposium would be the followed by the freezing of the CP market on Friday the 13th. This triggered one of the most tumultuous weeks in the history of money market mutual funds. Our March 18, 2020 Crane Data News featured, "Fed Announces Commercial Paper Funding Facility; ICI Holdings Update." We wrote, "A statement released yesterday, entitled, 'Federal Reserve Board announces establishment of a Commercial Paper Funding Facility (CPFF)' explains, 'The Federal Reserve Board announced ... that it will establish a Commercial Paper Funding Facility (CPFF) to support the flow of credit to households and businesses.... By ensuring the smooth functioning of this market, particularly in times of strain, the Federal Reserve is providing credit that will support families, businesses, and jobs across the economy. The CPFF will provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV) that will purchase unsecured and asset-backed commercial paper rated A1/P1 (as of March 17, 2020) directly from eligible companies. The CPFF program is established by the Federal Reserve under the authority of Section 13(3) of the Federal Reserve Act, with approval of the Treasury Secretary.' (NOTE: See also the WSJ article, 'Treasury Department Asks Congress to Let It Backstop Money Markets.')"

A day later, we posted, "Treasury to Temporarily Guarantee Money Mkt Funds; Fed Adds MMLF." Our piece explained, "Following days of concern about illiquidity in the commercial paper markets and outflows from Prime money market funds, the U.S. Treasury sought approval from Congress to launch a program to guarantee money market mutual funds for the second time in history. The Federal Reserve also stepped in with another support program. While details are scant, they should be forthcoming in coming days, and this, along with the launch of the new MMLF lending facility, should put an end to the budding run. The Wall Street Journal broke the news in its brief, 'Treasury Department Asks Congress to Let It Backstop Money Markets.' (See also the Fed's MMLF statement here.)"

On March 20, 2020, we published, "MMF Assets Hit Record High on Huge Govt Jump, Prime Drop; More MMLF," which said, "Money market mutual fund assets broke above their previous January 2009 record levels this week on a record jump in assets, as assets of Government funds skyrocketed and Prime MMFs plunged, according to the ICI's latest weekly '`Money Market Fund Assets' report. It explains, 'Total money market fund assets increased by $158.62 billion to $3.94 trillion for the week ended Wednesday, March 18, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $249.33 billion and prime funds decreased by $85.38 billion. Tax-exempt money market funds decreased by $5.32 billion.' ICI's weekly series shows Institutional MMFs rising $123.2 billion and Retail MMFs increasing $35.5 billion. Total Government MMF assets, including Treasury funds, were $3.094 trillion (78.6% of all money funds), while Total Prime MMFs were $712.7 billion (18.1%). Tax Exempt MMFs totaled $129.2 billion, 3.3%."

As we moved into the second week of full lockdown, so did the 'dash for cash.' Assets poured into Government money market funds, driving assets to record highs. But the Prime and Municipal segments suffered big outlows. We wrote the March 23 piece, "Goldman, Dreyfus Move to Support Prime MMFs; Fed MMLF Adds Munis," explaining, "Money market mutual funds experienced one of the craziest weeks in their 50 year history last week as the Federal Reserve and Treasury launched emergency measures to calm turmoil and outflows in the Prime and Municipal segments of the market. Meanwhile, Government money funds saw record-shattering inflows and overall assets surged to record levels not seen since January 2009. Late last week, two fund groups, Goldman Sachs and Dreyfus, acted to provide liquidity to their funds. Dreyfus parent BNY Mellon took steps to provide liquidity and support NAVs by purchasing blocks of 'money good' securities at par, while Goldman Sachs Bank USA provided liquidity by purchasing assets from the fund at market value as fears over the coronavirus wreaked havoc across the economy and impaired liquidity in financial markets. Prime money assets declined by $97.7 billion to $981.3 billion in the week through Thursday, March 19, but the flows have begun slowing under the onslaught of Federal Reserve and Treasury support programs. Government money market funds jumped by $264.5 billion to $3.150 trillion, and Tax Exempt MMFs fell $6.1 billion to $134.0 billion.... Month-to-date in March (through 3/19), Prime assets have fallen by $113.9 billion, Govt funds have risen by $419.5 billion, and Tax Exempt have fallen by $5.8 billion."

Finally, on March 24, we wrote, "Fed MMMF Liquidity Facility Adds CDs, VRDNs; OCC Revises STIF Rules." Crane Data said, "The Federal Reserve pulled out all the stops to support the money markets Monday, as its Money Market Mutual Fund Liquidity Facility, announced March 18, reached full force and was expanded to include almost all major asset classes owned by MMFs (CDs and VRDNs were the keys adds over the weekend). The move appears to be ratcheting down the level of danger in the money markets substantially, though we're not out of the woods yet. Prime outflows have decreased for 5 days in a row and weekly liquid assets increased noticeably Monday. The recently posted 'Money Market Mutual Fund Liquidity Facility FAQs' explains, 'How will this program support money market mutual funds (MMMFs)? In the days prior to the initiation of the program, some MMMFs experienced significant demands for redemptions by investors. Under ordinary circumstances, they would have been able to meet those demands by selling assets. Recently, however, many money markets have become extremely illiquid due to uncertainty related to the coronavirus outbreak."

It adds, "Pursuant to Section 13(3) of the Federal Reserve Act, and with prior approval of the Secretary of the Treasury, the Board of Governors of the Federal Reserve System (Board) authorized the Federal Reserve Bank of Boston (FRBB) to establish the MMLF. In addition, the Secretary of the Treasury, using the Exchange Stabilization Fund, will provide $10 billion of credit protection to FRBB. The MMLF will assist MMMFs in meeting demands for redemptions by households and other investors, enhancing overall market functioning and the provision of credit to households, businesses and municipalities.'"

Crane Data released its March Money Fund Portfolio Holdings Tuesday, and our most recent collection, with data as of Feb. 28, 2021, shows a jump in Repo, increases in TDs and CP, and declines in Treasuries, CDs, VRDNs and Agencies. Money market securities held by Taxable U.S. money funds (tracked by Crane Data) increased by $34.3 billion to $4.701 trillion in February, after increasing $42.9 billion in January and decreasing $88.0 billion in December. Treasury securities remained the largest portfolio segment, followed by Repo, then Agencies. CP remained fourth, ahead of Other/Time Deposits, CD 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 fell $42.6 billion (-1.7%) to $2.428 trillion, or 51.7% of holdings, after increasing $22.1 billion in January and $8.1 billion in December. Repurchase Agreements (repo) increased by $79.7 billion (8.0%) to $1.076 billion, or 22.9% of holdings, after decreasing $67.7 billion in January and $15.8 billion in December. Government Agency Debt decreased by $13.4 billion (-2.1%) to $637.0 billion, or 13.6% of holdings, after decreasing $32.3 billion in January and $13.8 billion in December. Repo, Treasuries and Agencies totaled $4.140 trillion, representing a massive 88.2% of all taxable holdings.

Money funds' holdings of CP and Other (mainly Time Deposits) saw increases in February while CD and VRDNs saw assets decrease. Commercial Paper (CP) increased $3.8 billion (1.5%) to $262.5 billion, or 5.6% of holdings, after increasing $36.2 billion in January and decreasing $8.3 billion in December. Other holdings, primarily Time Deposits, increased $16.5 billion (12.4%) to $149.9 billion, or 3.2% of holdings, after increasing $57.8 billion in January and decreasing $46.7 billion in December. Certificates of Deposit (CDs) fell by $9.6 billion (-6.8%) to $131.7 billion, or 2.8% of taxable assets, after increasing $15.8 billion in January and decreasing $10.9 billion in December. VRDNs decreased to $16.0 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 decreased $29.0 billion to $909.0 billion, or 19.3% of taxable money funds' $4.700 trillion total. Among Prime money funds, CDs represent 14.5% (down from 15.1% a month ago), while Commercial Paper accounted for 28.9% (up from 27.5%). The CP totals are comprised of: Financial Company CP, which makes up 19.8% of total holdings, Asset-Backed CP, which accounts for 4.8%, and Non-Financial Company CP, which makes up 4.3%. Prime funds also hold 4.2% in US Govt Agency Debt, 22.4% in US Treasury Debt, 2.8% in US Treasury Repo, 0.5% in Other Instruments, 12.5% in Non-Negotiable Time Deposits, 6.4% in Other Repo, 3.9% in US Government Agency Repo and 0.8% in VRDNs.

Government money fund portfolios totaled $2.601 trillion (55.3% of all MMF assets), down $41.0 billion from $2.642 trillion in January, while Treasury money fund assets totaled another $1.191 trillion (25.3%), up from $1.177 trillion the prior month. Government money fund portfolios were made up of 23.0% US Govt Agency Debt, 15.5% US Government Agency Repo, 48.0% US Treasury Debt, 13.1% in US Treasury Repo, 0.2% in VRDNs, 0.1% in Other Instruments and 0.2% in Investment Company. Treasury money funds were comprised of 82.0% US Treasury Debt and 17.9% in US Treasury Repo. Government and Treasury funds combined now total $3.792 trillion, or 80.7% of all taxable money fund assets.

European-affiliated holdings (including repo) increased by $50.2 billion in February to $701.8 billion; their share of holdings rose to 14.9% from last month's 13.7%. Eurozone-affiliated holdings rose to $479.8 billion from last month's $446.2 billion; they account for 10.2% of overall taxable money fund holdings. Asia & Pacific related holdings increased to $238.2 billion (5.1% of the total) from last month's $226.2 billion. Americas related holdings fell $118.0 billion to $3.758 trillion and now represent 80.0% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (up $26.7 million, or 4.8%, to $578.1 billion, or 12.3% of assets); US Government Agency Repurchase Agreements (up $53.6 billion, or 13.9%, to $439.4 billion, or 9.3% of total holdings), and Other Repurchase Agreements (down $0.6 billion, or -1.0%, from last month to $58.0 billion, or 1.2% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $1.2 billion to $179.7 billion, or 3.8% of assets), Asset Backed Commercial Paper (down $2.4 billion to $43.7 billion, or 0.9%), and Non-Financial Company Commercial Paper (up $5.1 billion to $39.0 billion, or 0.8%).

The 20 largest Issuers to taxable money market funds as of Feb. 28, 2021, include: the US Treasury ($2,427.8 billion, or 51.7%), Federal Home Loan Bank ($373.6B, 7.9%), BNP Paribas ($131.5B, 2.8%), RBC ($121.4B, 2.6%), Fixed Income Clearing Co ($100.8B, 2.1%), Federal Farm Credit Bank ($98.5B, 2.1%), Federal National Mortgage Association ($98.4B, 2.1%), JP Morgan ($93.3B, 2.0%), Barclays ($77.5B, 1.6%), Credit Agricole ($67.1B, 1.4%), Mitsubishi UFJ Financial Group Inc ($64.6B, 1.4%), Federal Home Loan Mortgage Co ($62.5B, 1.3%), Bank of America ($55.3B, 1.2%), Societe Generale ($48.8B, 1.0%), Sumitomo Mitsui Banking Co ($46.3B, 1.0%), Citi ($43.8B, 0.9%), Nomura ($39.0B, 0.8%) Goldman Sachs ($36.0B, 0.8%), Canadian Imperial Bank of Commerce ($35.9B, 0.8%) and Toronto-Dominion Bank ($34.6B, 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 ($121.3B, 11.3%), Fixed Income Clearing Corp ($100.8B, 9.4%), RBC ($94.0B, 8.7%), JP Morgan ($82.4B, 7.7%), Barclays ($61.7B, 5.7%), Bank of America ($53.2B, 4.9%), Credit Agricole ($47.5B, 4.4%), Mitsubishi UFJ Financial Group Inc ($47.0B, 4.4%), Nomura ($39.0B, 3.6%) and Citi ($37.5B, 3.5%).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: RBC ($27.4B, 5.7%), Mizuho Corporate Bank Ltd ($20.7B, 4.3%), Svenska Handelsbanken ($19.8B, 4.1%), Credit Agricole ($19.6B, 4.1%), Toronto-Dominion Bank ($18.0B, 3.8%), Mitsubishi UFJ Financial Group Inc ($17.6B, 3.7%), Canadian Imperial Bank of Commerce ($16.5B, 3.4%), Barclays ($15.8B, 3.3%), DNB ASA ($15.1B, 3.1%) and Bank of Montreal ($13.8B, 2.9%).

The 10 largest CD issuers include: Bank of Montreal ($12.1B, 9.2%), Sumitomo Mitsui Banking Corp ($10.0B, 7.6%), Mitsubishi UFJ Financial Group Inc ($9.5B, 7.2%), Toronto-Dominion Bank ($8.2B, 6.2%), Canadian Imperial Bank of Commerce ($8.2B, 6.2%), Mizuho Corporate Bank Ltd ($7.9B, 6.0%), RBC ($5.4B, 4.1%), Skandinaviska Enskilda Banken ($5.3B, 4.0%), Credit Suisse ($5.1B, 3.9%) and Sumitomo Mitsui Trust Bank ($4.9B, 3.7%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: Societe Generale ($12.3B, 5.4%), RBC ($11.2B, 4.9%), JP Morgan $10.9B, 4.8%), Barclays ($8.3B, 3.6%), NRW.Bank ($8.1B, 3.5%), BPCE SA ($7.8B, 3.4%), Toronto-Dominion Bank ($7.6B, 3.3%), Credit Suisse ($7.5B, 3.3%), BNP Paribas ($7.0B, 3.1%) and Mizuho Corporate Bank Ltd ($6.9B, 3.0%).

The largest increases among Issuers include: JP Morgan (up $21.6B to $93.3B), Barclays (up $12.9B to $77.5B), RBC (up $12.8B to $121.4B), Goldman Sachs (up $10.1B to $36.0B), Deutsche Bank AG (up $7.9B to $19.4B), Credit Agricole (up $5.9B to $67.1B), Nomura (up $5.7B to $39.0B), Bank of America (up $5.2B to $55.3B), Svenska Handelsbanken (up $4.8B to $19.8B) and BNP Paribas (up $4.6B to $131.5B).

The largest decreases among Issuers of money market securities (including Repo) in February were shown by: the US Treasury (down $42.6B to $2,427.8B), Federal Home Loan Bank (down $10.7B to $373.6B), Fixed Income Clearing Corp (down $9.9B to $100.8B), Bank of Montreal (down $3.9B to $32.1B), Citi (down $3.2B to $43.8B), Toronto-Dominion Bank (down $2.6B to $34.6B), Nordea Bank (down $2.6B to $9.7B), Federal Home Lan Mortgage Corp (down $1.8B to $62.5B), Bank of Nova Scotia (down $1.1B to $25.7B) and Mitsubishi UFJ Financial Group (down $1.0B to $64.6B).

The United States remained the largest segment of country-affiliations; it represents 74.4% of holdings, or $3.495 trillion. France (6.4%, $300.9B) was number two, and Canada (5.6%, $263.0B) was third. Japan (4.8%, $225.8B) occupied fourth place. The United Kingdom (2.8%, $130.4B) remained in fifth place. Germany (1.5%, $68.5B) was in sixth place, followed by the Netherlands (1.4%, $63.2B), Sweden (1.0%, $45.1B), Australia (0.6%, $30.2B) and Switzerland (0.5%, $25.3B). (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 Feb. 28, 2021, Taxable money funds held 31.3% (up from 29.0%) of their assets in securities maturing Overnight, and another 11.9% maturing in 2-7 days (unchanged from last month). Thus, 43.1% in total matures in 1-7 days. Another 13.3% matures in 8-30 days, while 14.2% matures in 31-60 days. Note that close to three-quarters, or 70.6% of securities, mature in 60 days or less (down slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-90 days, holds 11.8% of taxable securities, while 14.6% matures in 91-180 days, and just 3.0% matures beyond 181 days.

Money fund expense ratios hit their lowest level ever, falling to an average of 0.10%, as measured by our Crane 100 Money Fund Index and our broader Crane Money Fund Average, as of February 28, 2021. The previous record low for monthly annualized charged expense ratios was 0.11% in November 2014. Crane Data revises its monthly expense data and gross yield information after the SEC updates its latest Form N-MFP data the morning of the 6th business day of the new month. (They posted this info Monday morning, so we revised our monthly MFI XLS spreadsheet and historical craneindexes.xlsx averages file to reflect the latest expenses, gross yields, portfolio composition and maturity breakout late yesterday.) Visit our "Content" page for the latest files, and see below for the review of the latest N-MFP Portfolio Holdings data.

Our Crane 100 Money Fund Index, a simple average of the 100 largest taxable money funds, shows an average charged expense ratio (Exp%) of 0.10%, down from 0.11% last month. The average is down from 0.27% on Dec. 31, 2019, so we estimate that funds are waived approximately 17 bps, or almost two-thirds of full charged expenses. The Crane Money Fund Average, a simple average of all taxable MMFs, also shows a charged expense ratio of 0.10% as of Feb. 28, 2021, down 2 basis points from the month prior and down from 0.40% at year-end 2019.

Prime Inst MFs expense ratios (annualized) now average 0.14% (down 0.01% from last month), Government Inst MFs expenses average 0.08% (down 0.02% from the month prior), Treasury Inst MFs expenses also average 0.08% (down 0.02% from last month). Treasury Retail MFs expenses currently sit at 0.08%, (down 0.03% from the month prior), Government Retail MFs expenses yield 0.07% (down 0.02% over the month). Prime Retail MF expenses are 0.17% (down 0.01% from the month prior). Tax-exempt expenses were also lower, now averaging to 0.10% (down 0.01% from last month).

Gross 7-day yields were also lower, falling to 0.11% on average in the month ended Feb. 28, 2021. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (currently 743), shows a 7-day gross yield of 0.12%, down 2 basis points from the previous month. The Crane Money Fund Average is down 1.61% from 1.73% at the end of 2019. The Crane 100's 7-day gross yield also fell 2 basis points in February, ending the month at 0.12%, down 1.61% from year-end 2019.

According to our revised MFI XLS and Crane Index numbers, we now estimate that annualized revenue for all money funds is approximately $4.587 billion (as of 2/28/21). Our estimated annualized revenue totals have fallen from $5.401 billion last month, from $6.028 trillion at the start of 2020 and from $10.642 trillion at the start of 2019. Thus, we'd estimate that fee waivers are currently costing fund managers, and their distribution partners, over $6.0 trillion annually. (That's at these levels. Of course, charged expenses and gross yields are driven by a number of variables, and increasing Treasury supply should alleviate some of the pressures from this past month.)

Nonetheless, severe fee waivers and heavy fee pressure should continue as long as the Fed keeps yields pinned to almost zero. For more, see our Jan. 19, 2021 Crate Data News, "Ignites: MMFs Waive $3.1B in Fees; MFI Intl: Euro MMFs Up 60% in 2020." Their piece explains, "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."

They also wrote, "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 annual figures for total waivers encompass fees waived for any reason, not just those connected to keeping yields above zero. 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."

Ignites added, "The funds finished the year with $4.2 trillion in assets, up from $3.6 billion as of year-end 2019, ICI data shows. The 100 largest money funds charged an average expense ratio of 13 basis points in December 2020, according to Crane Data. A year earlier, the average was 27 bps. But the seven-day average yield for the 100 largest money funds was 2 bps as of Dec. 31, according to Crane Data. That's down from 131 bps a year earlier. 'That pain is spread across various entities,' says Peter Crane, CEO of Crane Data. 'Distribution fees are always the first to get cut,' he adds, noting that those cuts are normally shared with intermediaries."

In related 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 February 28 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 Feb. 28, 2021 includes holdings information from 1,067 money funds (down six from last month), representing assets of $4.862 trillion (up from $4.827 trillion). Prime MMFs now total $921.5 billion, or 19.0% 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 $2.450 trillion (down from $2.488 trillion), or a massive 50.4% of all holdings. Repurchase Agreement (Repo) holdings in money market funds totaled $1.084 trillion (up from $1.005 trillion), or 22.3% of all assets, and Government Agency securities totaled $651.9 billion (down from $665.4 billion), or 13.4%. Holdings of Treasuries, Government agencies and Repo (almost all of which is backed by Treasuries and agencies) combined total $4.186 trillion, or a stunning 86.1% of all holdings.

Commercial paper (CP) totals $271.7 billion (up from $267.4 billion), or 5.6% of all holdings, and the Other category (primarily Time Deposits) totals $192.0 billion (up from $174.9 billion), or 3.9%. Certificates of Deposit (CDs) total $132.2 billion (down from $141.8 billion), 2.7%, and VRDNs account for $80.2 billion (down from $84.7 billion last month), or 1.6% of money fund securities.

Broken out into the SEC's more detailed categories, the CP totals were comprised of: $182.3 billion, or 3.7%, in Financial Company Commercial Paper; $43.4 billion or 0.9%, in Asset Backed Commercial Paper; and, $46.0 billion, or 0.9%, in Non-Financial Company Commercial Paper. The Repo totals were made up of: U.S. Treasury Repo ($588.0B, or 12.1%), U.S. Govt Agency Repo ($438.3B, or 9.0%) and Other Repo ($58.1B, or 1.2%).

The N-MFP Holdings summary for the 208 Prime Money Market Funds shows: CP holdings of $266.3 billion (up from $262.1 billion), or 28.9%; Treasury holdings of $210.2 billion (down from $240.7 billion), or 22.8%; Other (primarily Time Deposits) holdings of $145.4 billion (up from $131.1 billion), or 15.8%; CD holdings of $132.2 billion (down from $141.8 billion), or 14.3%; Repo holdings of $119.8 billion (down from $120.7 billion), or 13.0%; Government Agency holdings of $28.8 billion (down from $44.5 billion), or 4.2% and VRDN holdings of $8.9 billion (down from $9.2 billion), or 1.0%.

The SEC's more detailed categories show CP in Prime MMFs made up of: $182.3 billion (up from $179.9 billion), or 19.8%, in Financial Company Commercial Paper; $43.4 billion (down from $45.9 billion), or 4.7%, in Asset Backed Commercial Paper; and $40.6 billion (up from $36.3 billion), or 4.4%, in Non-Financial Company Commercial Paper. The Repo totals include: U.S. Treasury Repo ($26.7 billion, or 2.9%), U.S. Govt Agency Repo ($35.0 billion, or 3.8%), and Other Repo ($58.1 billion, or 6.3%).

Crane Data's latest Money Fund Market Share rankings show assets were mostly higher among the largest U.S. money fund complexes in February. Money market fund assets increased $30.8 billion, or 0.6%, last month to $4.778 trillion. Assets have increased by $41.6 billion, or 0.9%, over the past 3 months, and they've increased by $778.0 billion, or 16.7%, over the past 12 months through Feb. 28, 2021. The biggest increases among the 25 largest managers last month were seen by BlackRock, JP Morgan, Dreyfus, Goldman Sachs and Morgan Stanley, which grew assets by $34.8 billion, $24.2B, $10.5B, $10.1B and $9.1B, respectively. The largest declines in assets in February were seen by Vanguard, Fidelity, Federated Hermes, Northern and SSGA, which decreased by $14.0 billion, $13.0B, $7.8B, $6.3B and $5.9B, 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 February.

Over the past year through Feb. 28, 2021, Morgan Stanley (up $102.1B, or 50.3%), Vanguard (up $82.2B, or 18.6%), BlackRock (up $79.3B, or 19.6%), Wells Fargo (up $72.4B, or 43.4%), JP Morgan (up $67.4B, or 16.2%), Goldman Sachs (up $65.4B, or 20.5%) and First American (up $50.2B, or 54.4%) were the largest gainers. These complexes were followed by Dreyfus (up $48.2B, or 25.7%), Northern (up $35.6B, or 23.7%) and American Funds (up $31.6B, or 21.0%). JP Morgan, Morgan Stanley, Dreyfus, T Rowe Price and Invesco had the largest asset increases over the past 3 months, rising by $37.3B, $35.6B, $31.8B, $12.6B and $10.5B, respectively. The largest decliners over 3 months included: Federated Hermes (down $23.3B, or -6.7%), Schwab (down $14.7B, or -8.2%), Wells Fargo (down $10.4B, or -5.0%), Vanguard (down $9.2B, or -1.9%) and UBS (down $8.6B, or -14.3%).

Our latest domestic U.S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $901.4 billion, or 18.9% of all assets. Fidelity was down $13.0 billion in February, down $4.4 billion over 3 mos., and down $657M over 12 months. Vanguard ranked second with $484.1 billion, or 10.1% market share (down $14.0B, down $9.2B and up $82.2B for the past 1-month, 3-mos. and 12-mos., respectively). BlackRock was third with $460.4 billion, or 9.6% market share (up $34.8B, down $2.3B and up $79.3B). JP Morgan ranked fourth with $447.0 billion, or 9.4% of assets (up $24.2B, up $37.3B and up $67.4B for the past 1-month, 3-mos. and 12-mos.), while Federated Hermes took fifth place with $323.0 billion, or 6.8% of assets (down $7.8B, down $23.3B and up $12.3B).

Goldman Sachs was in sixth place with $313.3 billion, or 6.6% of assets (up $10.1 billion, down $76M and up $65.4B), while Morgan Stanley was in seventh place with $243.8 billion, or 5.1% (up $9.1B, up $35.6B and up $102.1B). Dreyfus ($218.0B, or 4.6%) was in eighth place (up $10.5B, up $31.8B and up $48.2B), followed by Wells Fargo ($199.4B, or 4.2%, down $3.4B, down $10.4B and up $72.4B). Schwab was in 10th place ($164.9B, or 3.5%; down $4.0B, down $14.7B and down $33.7B).

The 11th through 20th-largest U.S. money fund managers (in order) include: Northern ($161.4B, or 3.4%), American Funds ($149.2B, or 3.1%), SSGA ($138.0B, or 2.9%), First American ($117.1B, or 2.5%), Invesco ($76.7B, or 1.6%), UBS ($51.5B, or 1.1%), T Rowe Price ($46.6B, or 1.0%), HSBC ($37.7B, or 0.8%), Western ($33.5B, or 0.7%) and DWS ($27.4B, or 0.6%). 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 ($913.5 billion), JP Morgan ($642.7B), BlackRock ($640.7B), Vanguard ($484.1B) and Goldman Sachs ($433.5B). Federated Hermes ($332.6B) was sixth, Morgan Stanley ($290.7B) was in seventh, followed by Dreyfus ($241.3B), Wells Fargo ($200.4B) and Northern ($187.5B) which round out the top 10. These totals include "offshore" U.S. Dollar money funds, as well as Euro and Pound Sterling (GBP) funds converted into U.S. dollar totals.

The March issue of our Money Fund Intelligence and MFI XLS, with data as of 2/28/21, shows that yields were flat in February for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (currently 743), 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 0.13%, the Gross 30-Day Yield was also unchanged at 0.13%.

Our Crane 100 Money Fund Index shows an average 7-Day (Net) Yield of 0.02% (unch) and an average 30-Day Yield also unchanged at 0.02%. The Crane 100 shows a Gross 7-Day Yield of 0.14% (unch), and a Gross 30-Day Yield of 0.14% (unch). Our Prime Institutional MF Index (7-day) yielded 0.03% (unch) as of February 28, 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 2 basis points, and the spread between Prime funds and Govt funds is 1 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 February.

Gross 7-Day Yields for these indexes in February were: Prime Inst 0.19% (unch), Govt Inst 0.10% (unch), Treasury Inst 0.12% (unch), Prime Retail 0.20% (unch), Govt Retail 0.12% (unch) and Treasury Retail 0.11% (unch). The Crane Tax Exempt Index was unchanged at 0.13%. The Crane 100 MF Index returned on average 0.00% over 1-month, 0.01% over 3-months, 0.00% YTD, 0.15% over the past 1-year, 1.30% over 3-years (annualized), 0.98% over 5-years, and 0.51% over 10-years.

The total number of funds, including taxable and tax-exempt, was down 18 at 911. There are currently 743 taxable funds, down 5 from the previous month, and 168 tax-exempt money funds (down 13 from last month). (Contact us if you'd like to see our latest MFI XLS, Crane Indexes or Market Share report.

The March issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Liquidations, Changes Slowly Reshape Manager Landscape," which discusses the flurry of recent fund moves; "Ameriprise's Chris Melin on Brokerage Sweeps, Cash," which profiles the Director of Cash Products; and, "Deposits, Cash Soar in '20, Pause in '21; Banks vs. MMFs," which explores money fund vs. bank deposit growth. 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 March Money Fund Portfolio Holdings are scheduled to ship on Tuesday, March 9, and our March Bond Fund Intelligence is scheduled to go out Friday, March 12.

MFI's lead article says, "While the money market fund industry remains surprisingly robust given the myriad challenges it faces, small-scale liquidations and changes continue to gradually remake the space and increase concentration. Over the past month, a number of funds announced or completed liquidations, Wells Fargo announced the sale of its asset management unit, and Dreyfus took additional steps to streamline its fund lineup. In February, Crane Data removed 22 funds from MFI, including over a dozen State Municipal funds. Below, we review the latest batch of changes.

It continues, "SunAmerica is the latest asset manager to exit the money market fund space, which will bring the total of U.​S. MMF managers down to 64. A Prospectus Supplement for its AIG Government Money Market Fund explains, 'SunAmerica Asset Management, the Fund's investment adviser, and Touchstone Advisors, announced that they have entered into a definitive agreement for Touchstone to acquire certain assets related to SunAmerica's retail mutual fund management business.... Certain AIG Funds not covered by the agreement, including the Fund, will be liquidated.'"

Our latest "Profile" reads, "This month, MFI interviews Ameriprise Director of Cash Products, Chris Melin. He details the history of the company in cash, comments on the brokerage sweep marketplace and discusses major challenges, including record low rates. Melin also comments on Ameriprise’s outlook. Our Q&A follows."

MFI says, "Give us a little background," and Melin tells us, "The company was founded back in 1894 with a cash product, a 'face-amount certificate'. Through the Ameriprise Certificate Company, we're still issuing Certificates, which are unique investment products that our advisors can offer to help clients manage their cash. Certificates are guaranteed by the Ameriprise Certificate Company."

He continues, "In a more traditional sense, we've been offering money market funds and cash management accounts for decades. In 2003 we started offering sweep options with brokerage accounts -- offering money market funds, a free credit balance option and a single bank deposit program. It stayed that way until 2007, when we decided to add a multi-bank program. As part of Money Fund Reform in 2016, we elected to change our sweep options to government funds-- not wanting to put clients at risk with institutional and retail funds where there was potential for withdrawal gates and fees. We currently offer a multi-bank sweep deposit program, a single bank sweep deposit program, two US government money funds as sweep options and a free credit balance option."

The "Deposits" article tells readers, "U.S. money fund assets grew by 19.1% in 2020, following a 20.8% gain in 2019. Meanwhile, bank deposits surged by 28.3% last year, following seven years of anemic growth. This is according to the Federal Reserve's H.6 data series. Money funds added $627.5 billion (to $3.933 trillion) and Deposits gained $2.779 trillion (to $12.640 trillion) in 2020, according to the Fed, while Small Time Deposits, or bank CDs, plunged by $324.2 billion to a mere $217.9 billion."

It explains, "Assets of Deposits jumped in 2020 after slowing to a crawl in 2018 and 2019. Meanwhile, money fund assets also jumped in 2020 after a scorching 2019 (when they rose $565.5 billion). Money funds and deposits together rose $1.1 trillion in 2019, and an incredible $3.1 trillion in 2020."

MFI also includes the News piece, "Comments to SEC on PWG Report." It says, "The first letters have appeared following the SEC's request for comment on the PWG Report. See the first real posting here."

An additional News brief, "Morgan Stanley Govt Goes Social," tells us, "A filing 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.'"

Our March MFI XLS, with February 28 data, shows total assets rose by $30.8 billion in February to $4.781 trillion, after rising $5.6 billion in January, 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 and $417.9 billion in April. 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), the Crane MFA sat at 0.13% while the Crane 100 sat at 0.14%. Charged Expenses averaged 0.12% for the Crane MFA and 0.11% for the Crane 100. (We'll revise expenses on Monday once we upload the SEC's Form N-MFP data for 2/28.) The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 42 (unch.) and 45 days (down a day) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

The Bank For International Settlements released its latest BIS Quarterly Review, which includes two sections involving money market funds. The first article, entitled, "Investor size, liquidity and prime money market fund stress," explains, "Massive redemptions at money market funds (MMFs) investing primarily in high-quality short-term private debt securities were an important feature of the market dislocations in March 2020. Building on previous studies of the underlying drivers, we find that large investors’ withdrawals did not differentiate across prime institutional MMFs according to these funds' asset liquidity positions. We also find that, faced with large redemptions, the managers of these funds disposed of the less liquid securities in their portfolios, marking a departure from their behaviour in tranquil times. This is likely to have exacerbated market-wide liquidity shortages. After the Federal Reserve's announcement of the Money Market Mutual Fund Liquidity Facility, all funds strengthened their liquidity positions, with those hardest-hit by outflows attempting to catch up with peers."

Authors Fernando Avalos and Dora Xia tell us, "As the Covid-19 shock gathered momentum in March 2020, large withdrawals beset money market mutual funds (MMFs) investing primarily in high-quality short-term private debt securities (prime MMFs). Since these funds are major global providers of short-term dollar funding to banks and non-financial corporates, their stress had system-wide repercussions (Eren, Schrimpf and Sushko (2020))."

The BIS review continues, "This run on prime MMFs was different from other prominent financial runs in history. The bank runs during the Great Depression and the 2008 run on the very same MMF sector were triggered by concerns about the credit quality of the intermediaries' portfolio of assets. In March 2020, credit quality was not an obvious concern, partly reflecting the strengthened requirements introduced by MMF regulatory reforms in the aftermath of the 2008 crisis."

It says, "Previous studies of MMF stress have pointed to concerns over funds' liquidity. Li et al (2020) find that prime institutional funds with relatively weaker liquidity positions suffered more pronounced outflows. Cipriani and La Spada (2020) note that the funds' investor base also played a role: while funds' liquidity was relevant for prime institutional funds, it was not for their retail counterparts. One complicating factor in these assessments is that prime institutional and retail funds are subject to different regulatory rules, making it hard to disentangle the effect of the investor base from that of regulation."

The BIS writes, "To further investigate the role of the investor base, we focus on prime institutional MMFs. Focusing on funds facing identical regulations allows us to study other determinants of redemption patterns. To distinguish investor types, we differentiate between funds with large and small minimum investment sizes, as they tend to cater to large and small institutional investors, respectively. Other studies have shown that these two groups of funds behaved differently during past stress episodes (eg Schmidt et al (2016), Gallagher et al (2020))."

The Quarterly Review piece posits, "We find that investor size was an important determinant of the pattern of redemptions from prime institutional MMFs in March 2020. Possibly owing to their own cash needs, large investors massively redeemed fund shares, paying little attention to the liquidity of the funds' asset portfolios. By contrast, the liquidity of funds' positions was relevant for small institutional investors. However, to the extent that the characteristics of funds' assets were not the sole driver of redemptions, this was not a classic run."

It summarizes, "In the second part of this feature, we shift the focus from the behaviour of investors to that of the fund managers. We find that managers disposed of the less liquid assets in their portfolios. Such sales may have exacerbated market-wide liquidity shortages during the heightened market stress in the first half of March. This stress eased after the Federal Reserve announced its Money Market Mutual Fund Liquidity Facility (MMLF) in mid-March, which stemmed withdrawals. Managers proceeded to rebuild their liquidity buffers, raising them to higher than pre-pandemic levels. Ultimately, funds that had experienced larger withdrawals saw a stronger subsequent build-up of liquidity buffers."

The BIS study adds, "This feature proceeds as follows. In the next section, we present a brief introduction to the MMF sector and survey attendant developments during the March 2020 stress, both at the sector and the fund levels. In the second section, we focus on liquidity positions and investor size as potential drivers of the March stress at US prime institutional MMFs. The third section studies such MMFs' liquidity management before, during and after the stress episode. The last section concludes."

Finally, the "Conclusion" tells us, "The inability of prime institutional MMFs to provide liquidity on demand in March 2020 called for central bank intervention (FSB (2020a)). Unlike banks, which proved to be useful elastic nodes during the pandemic-induced turmoil (Shin (2020)), the funds' dash for liquidity added to the stress across financial markets. Thus, the provision of central bank liquidity was pivotal in restoring calm (CGFS (2011)). The events of March 2020 have left an indelible mark. They echoed those during the Great Financial Crisis in September 2008, when the MMF sector suffered a comparable massive seizure and also required central bank assistance. Our findings are offered as a contribution to the ongoing debate about the policy measures that could enhance the resilience of MMFs."

The BIS Quarterly's other article, "Dollar funding of non-US banks through Covid-19," states, "Non-US banks' on-balance sheet dollar liabilities rose in 2020 despite the decline in funding from US and offshore money market funds (MMFs). Other non-bank financial institutions were behind this increase, as they drove the strong rise in deposits booked inside and outside the United States. Non-US banks' issuance of international debt securities in US dollars remained resilient in 2020. Additionally, the currency composition of banks' total bond issuance tilted towards the dollar after March. Overall, our findings point to changes in funding relationships that could have long-lasting effects on the functioning of dollar funding markets."

It explains, "The 'dash for cash' episode during the height of the Covid-19 crisis in March led to severe strains in dollar funding markets (FSB (2020), BIS (2020)). A prompt and forceful policy response by central banks through emergency lending programmes and central bank swap lines averted a dollar funding crisis (Cetorelli et al (2020)). Subsequent developments indicate that this episode triggered large shifts in how non-US banks source funding in US dollars."

This BIS piece adds, "On-balance sheet dollar liabilities of non-US banks reached record levels over the first three quarters of 2020. At end-Q3 2020, they stood at $12.4 trillion – $800 billion above their pre-pandemic level at end-2019. This is in contrast with the Great Financial Crisis (GFC), when these liabilities declined substantially and in a sustained manner. To show the sectors and instruments that drove these headline numbers, this article combines the BIS banking and international debt securities statistics, money market funds' (MMFs) portfolio holdings, bank balance sheet data and central counterparty (CCP) disclosures."

A section on the "Decline in money market fund funding," states, "The March turmoil illustrated once again that MMFs are an important, yet flighty, dollar funding source. Non-US banks lost a substantial amount ($300 billion) of MMF dollar funding between end-2019 and end-2020.... Around 85% of the decline was unsecured funding, booked either inside or outside the United States. The contraction was particularly intense during the 'dash for cash' episode in February and March 2020, when MMFs reduced their dollar funding by around $207 billion -- close to 2% of non-US banks' aggregate on-balance sheet dollar funding. MMF funding did not recover even as market conditions normalised."

It explains, "Some national banking systems lost more funding than others. Unsecured funding contracted the most for Canadian, Japanese and Australian banks ... all of which were among the largest recipients going into the pandemic.... In contrast, French banks faced only a limited decline. While their repo borrowing declined somewhat, they remained the largest repo counterparties to MMFs among non-US banks."

Lastly, it adds, "The maturity structure of funding by US MMFs changed both during the March turmoil and later in 2020. At the peak of the market turmoil, the reduction in the volume of this funding went hand in hand with a maturity shortening (Eren, Schrimpf and Sushko (2020), Avalos and Xia (2021)). In the second half of 2020, banks were able to lengthen the maturity of some of the funding they obtained from US MMFs.... Notably, however, the share of more flighty overnight unsecured borrowing also increased for many banks."

In early February, a release announced the "SEC Requests Comment on Potential Money Market Fund Reform Options Highlighted in President's Working Group Report." (See our Feb. 4 Link of the Day.) While interested parties have until the April 12 deadline to submit thoughts, the first real comment was posted by Jeffrey Gordon, a Professor at Columbia Law School. Gordon writes, "This letter is submitted by me personally in connection with the request for comments by the Securities Exchange Commission in response to its Request for Comments on Potential Money Market Fund Reform Measures in the President's Working Group Report of December 2010. I am the Richard Paul Richman Professor at Columbia Law School and co-director of the Millstein Center for Global Markets and Corporate Ownership. I participated extensively in two prior rounds of MMF reform proposals, including the rule-making that resulted in the present rules, commented on FSOC's proposed recommendations in 2102, and published an article that addresses MMF reform generally, 'Money Market Funds Run Risk: Will Floating Net Asset Value Fix the Problem?' (with Christopher M. Gandia). The conclusion of the article was that 'the best empirical evidence we have suggests that floating NAV will not reduce MMF run-risk during periods of financial distress.'" (See the comment letters to the SEC here.)

He explains, "My final submission was a November 17, 2013, comment letter (attached hereto), arguing that neither floating NAV nor gates and fees would provide stability to MMFs at a time of financial stress, indeed, could exacerbate run pressure. Some of my observations in that November 2013 comment letter are particularly pertinent to this round of reform deliberation and I would like to enter them into the record."

Gordon's previous comment letter says, "In candor I think the SEC has produced flawed proposals that simply fail to appreciate the nature of the MMF product and the sources of systemic risk. MMFs are a kind of nonbank bank; they take credit risk, provide liquidity transformation, and yet under current SEC rules, have no capacity to absorb losses. The floating NAV proposal makes this painfully clear. If any portfolio security were to default, ever, there is no virtually no way that the fund could report par, $1 per share, unless the sponsor agreed to swap out the defaulted security. This is because MMFs are flow-through vehicles. Dividends on portfolio securities may not be retained and thus are not available to apply against losses."

It continues, "An obvious point of stability of a bank or a bank substitute is capital, which provides the capacity to bear loss. Indeed, a major thrust of post-financial crisis reform has been to require financial institutions to hold more capital. In the case of MMFs, the SEC has proceeded as if unaware of this consensus. The SEC proposal is filled with new disclosure requirements for MMFs, because this is the SEC's hammer. Experts on financial institutions make the point, however, that the stability of an entity engaged in liquidity transformation depends upon its assets being informationally insensitive -- that as soon as depositors need to begin evaluating the credit risk of the bank's portfolio, run risk escalates. Detailed current disclosure, which will lead to competitive valuation estimates of portfolio assets and the search for arbitrage opportunities, may well be a source of instability in a financial crisis for MMFs with no capacity to absorb loss."

Gordon asks, "What is the consequence? Ultimately the stability of MMFs depends upon implicit guarantees and other support by their sponsors, and, in extremis, the willingness of the Federal Reserve to take credit risk to avoid a massive run among MMFs. Nothing in the SEC rulebook tests sponsor capacity to provide support, nor links sponsor capacity to fund size, nor requires disclosure about sponsor capacity, much less requires any sponsor support. To be blunt, the SEC proposal relies on a future Federal Reserve bailout to protect the stability of the MMF sector."

He continues, "The SEC has been sensitive to encroachments by the Federal Reserve Board on its securities markets domain. It seems to me that the best way for the SEC to proceed is to recognize that it needs to build in some mechanism for loss absorbency into its MMF regime. I think that both Proposals Two and Three of the FSOC's Proposed [previous] Recommendations on MMF Reform are useful starting points. I myself have previously offered a proposal for a 'bundled' Class A/Class B share structure that would lead users, especially institutional users, to internalize the loss-absorbency and run-risk mitigation features that are necessary elements of reform. That proposal is more fully described in a comment letter of August 12, 2011."

Gordon tells us, "Notice what this proposal accomplishes: it requires the users of institutional money market funds to supply the capital necessary for their stability and it creates disincentives for such investors to 'run.' These are advantages over proposals that contemplate sale of Class B shares to a separate group of capital suppliers. In particular, the 'unit' concept means that an investor who 'ran' by redeeming Class A shares at par at a time of falling asset values could not thereby impose losses on non-redeeming investors. The losses would be borne by the matched Class B shares, including shares held by the 'running' investor, which cannot be disposed of except after a month's lag."

He writes, "The unit concept therefore provides an additional element of systemic stability beyond proposals that call for a capital cushion only. A capital cushion cannot, by itself, fully protect against runs. Even if the capital could absorb the loss of the largest portfolio position, another default could break through the Class B. Thus in periods of financial instability, runs remain a threat despite first loss protection, because the run strategy presents no downside for the individual running investor. A Class A/Class B unit changes the dynamic. Default risk, especially risk of multiple defaults that break through the Class B, is fact low. By contrast, given a run, the chance of fire sale losses is much higher. A holder of matching Class B shares now sees downside in the decision to run, with a much greater probability of loss because of the run itself. For an even more powerful anti-run incentive, the Class B shares of the running shareholder could be subordinated to the Class B shares of the non-running shareholders. The combination of the capital layer and the unit approach should significantly increase money market fund stability."

Gordon also states, "There is perhaps $6 trillion in short term funds in the global financial system looking for safety and liquidity outside of the banking system. It is important to devise financial institutions that can manage such cash flows in a systemically robust way and that does not depend on a taxpayer subsidy for its rescue. The prior design of MMF was an experiment that produced a bad outcome. So we must experiment again, learning from experience and being willing to revise our institutions in light of new economic challenges."

Finally, he adds, "I hope to comment more particularly on the PWG report before the comment deadline. One thing that I think the Commission should not ignore is the distortionary impact of its current MMF Rule on financing decisions of the Federal Home Loan Banks. As documented in the PWG report, Chart 1, p.9 the enacted Reforms resulted in a dramatic increase in the demand for Government funds (because they qualified for fixed NAV), and a decrease in the demand for Prime funds (floating NAV). The demand for short term USG issuances has been fulfilled by a significant increase in short term issuances by the Federal Home Loan Bank System. In formulating a reform proposal to address the problems revealed by the Covid-crisis run in March 2020, the Commission should consider the financial stability and other effects associated with this shift in Federal Home Loan Bank finance."

In other news, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of Feb. 26, 2021) includes Holdings information from 71 money funds (down 2 funds from a week ago), which represent $2.082 trillion (down from $2.170 trillion) of the $4.757 trillion (43.8%) 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 $1.082 trillion (down from $1.143 trillion a week ago), or 52.0%, Repurchase Agreements (Repo) totaling $532.8 billion (up from $504.5 billion a week ago), or 25.6% and Government Agency securities totaling $261.6 billion (down from $269.4 billion), or 12.6%. Commercial Paper (CP) totaled $73.1 billion (down from $93.5 billion), or 3.5%. Certificates of Deposit (CDs) totaled $53.1 billion (down from $57.4 billion), or 2.5%. The Other category accounted for $53.5 billion or 2.6%, while VRDNs accounted for $25.6 billion, or 1.2%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.086 trillion (52.2% of total holdings), Federal Home Loan Bank with $138.2B (3.2%), Fixed Income Clearing Corp with $67.1B (3.2%), BNP Paribas with $58.2B (2.8%), Federal Farm Credit Bank with $52.0B (2.5%), RBC with $44.9B (2.2%), Federal National Mortgage Association with $44.2B (2.1%), JP Morgan with $37.5B (1.8%), Barclays PLC with $35.4B (1.7%) and Credit Agricole with $30.9B (1.5%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($224.1 billion), Wells Fargo Govt MM ($143.6B), BlackRock Lq FedFund ($143.3B), Fidelity Inv MM: Govt Port ($136.0B), Morgan Stanley Inst Liq Govt ($113.4B), BlackRock Lq T-Fund ($111.5B), Dreyfus Govt Cash Mgmt ($95.1B), JP Morgan 100% US Treas MMkt ($93.4B), First American Govt Oblg ($80.4B) and JP Morgan Prime MM ($74.2B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)

The Federal Reserve Bank of New York published a "Staff Report," entitled, "Sophisticated and Unsophisticated Runs," which analyzes money fund outflows during last March's sudden coronavirus lockdown. Authors Marco Cipriani and Gabriele La Spada tell us, "In March 2020, at the beginning of the Covid-19 pandemic, investors redeemed en mass from prime money market funds (MMFs). At the height of the run, cumulative redemptions from US-dollar prime MMFs, both onshore and offshore, were 22% of industry's total net assets (TNA) as of the end of 2019. Outflows were significant for both institutional (32%) and retail investors (11%). This is the second time the industry has suffered a run over the last 20 years: in 2008, after Lehman bankruptcy, redemption pressures of similar magnitude buffeted the industry. In both cases, the Federal Reserve intervened to stem the outflows with the establishment of emergency lending facilities."

They explain, "In this paper, we use the 2020 run to characterize the behavior of sophisticated and unsophisticated MMF investors. The 2014 SEC reform separated prime MMFs by investor type, separating funds catering only to retail (unsophisticated) investors from those catering to institutional (sophisticated) ones. We show that the behavior of these two classes of investors were dramatically different during the crisis, which we view as a result of their different level of sophistication."

The report continues, "Institutional investors left those prime funds whose liquid assets were closer to the regulatory thresholds for gates and fees on redemptions. Therefore, their decision to run was based on an assessment of the likelihood that their access to liquidity might be impaired. This is true both for institutional onshore funds and for institutional offshore funds."

It says, "We identify the impact of gates and fees in two ways. First, since gates and fees can be imposed only if a fund's weekly liquid assets (WLA) drop below a threshold, we instrument funds' WLA with their average values in 2019Q4; our instrument allows us to control for reverse causality issues due to a fund's liquidity management during the run. We find that a 10 percentage-point decrease in 2019Q4 WLA leads to an increase in daily outflows of 1.1 percentage points in onshore institutional prime MMFs."

The report states, "Second, we exploit the fact that some offshore institutional prime MMFs are exempt from the imposition of gates or fees. During the run, such funds experienced daily outflows that were 1.3 percentage points smaller than those suffered by offshore institutional prime funds that can impose gates and fees."

It comments, "No such relationship between the likelihood of gates or fees and investor flows exists in retail funds. Instead, retail investors left those prime MMFs belonging to families that also catered to institutional prime investors and suffered heavier institutional redemptions. For example, during the run, retail prime MMFs in families also offering institutional funds experienced daily outflows that were 1.7 percentage points larger. In other words, (unsophisticated) retail investors seem to base their decision by following the behavior of (sophisticated) institutional investors within the same fund family."

The report also tells us, "The imposition of gates or fees is one of the main regulatory changes of the prime MMF industry introduced by the SEC in its 2014 reform. At that time, some practitioners, policy makers, and academics feared that the new regulation would make runs more likely by giving an incentive for investors to leave a fund preemptively ahead of a gate or fee being imposed. For instance, Cipriani et al. (2014) show in a simple Diamond and Dybvig (1983) model that such an incentive is present and that preemptive runs would occur. In this paper, we show that such a theoretical mechanism is indeed consistent with investors' behavior; however, it does require some level of sophistication for investors to run preemptively, and, as a result, we do not observe preemptive runs in retail prime MMFs. The unintended consequence of redemption gates and fees, however, can still propagate to retail funds via within-family spillovers from institutional to retail investors."

It adds, "Finally, investors who left the prime MMF sector largely moved their money to government funds, consistently with past episodes of industry dislocation. This is true both of retail and of institutional investors. Prime MMFs belonging to families more specialized in government MMFs experienced larger outflows. For example, a 10 percentage-point increase in the share of government MMFs in a family's MMF business in 2019Q4 leads to daily outflows during the run that are larger by 0.24 percentage points in onshore institutional prime funds and 0.20 percentage points in onshore retail prime funds. We obtain similar results when we compare outflows from prime funds between families that also offer government funds and those that do not. This result suggests that, for both institutional and retail investors, there are lower switching costs in fund families that are relatively more specialized in government MMFs, which could lead to higher flow volatility during periods of stress."

The report also comments, "Several recent papers have studied episodes of severe dislocation in the MMF industry. The 2008 run on prime MMFs was described in Baba et al. (2009), Brady et al. (2012), and Kacperczyk and Schnabl (2013), among others. Cipriani and La Spada (2017) analyze investors' behavior in response to the 2014 SEC reform of the MMF industry; they show that the imposition of a system of gates and fees on onshore prime MMFs (along with the floating NAV requirement for institutional ones) led to outflows of more than a trillion dollars from prime MMFs. Schmidt et al. (2016) study the relationship between fund flows during the 2008 run and investor sophistication, focusing on the externalities caused by the presence of investors with different levels of sophistication (e.g., institutional and retail ones) within the same fund. We follow their interpretation of the differences in institutional versus retail behavior as reflecting different levels of investor sophistication."

Lastly, the paper's "Introduction" says, "The 2020 Covid-19 run is also studied by Li et al. (2020). They provide similar evidence to ours on the impact of gates and fees on investor flows in US institutional prime MMFs, while differing in the identification strategy; we discuss the difference in our empirical analysis. Casavecchia et al. (2020) document the March 2020 run focusing on institutional prime MMFs and their floating NAV feature.... The remainder of the paper is as follows: Section 2 describes onshore and offshore MMFs and our dataset; Section 4 describes the run by (sophisticated) institutional investors; Section 5 describes the run by (unsophisticated) retail investors; and Section 6 shows the effect of family specialization in government funds on run behavior."

Federated Hermes filed its latest "10-K Annual Report" with the SEC Friday, and CEO Chris Donahue also spoke last week to an investor conference. Both the filing and the presentation contained a number of statements involving money market mutual funds, and we excerpt from both the 10-K and Donahue's speech below. The annual report says about "Distribution Channels and Product Markets," "Federated Hermes' distribution strategy is to provide investment management products and services to more than 11,000 institutions and intermediaries, including, among others, banks, broker/dealers, registered investment advisors, government entities, corporations, insurance companies, foundations and endowments.... These markets and the relative percentage of managed assets at December 31, 2020 attributable to such markets are as follows: U.S. financial intermediary (63%); U.S. institutional (25%); and international (12%).... As of December 31, 2020, managed assets in the U.S. financial intermediary market included $286.2 billion in money market assets ... managed assets in the U.S. institutional market included $117.6 billion in money market assets [and] ... managed assets in the international market included ... $16.6 billion in money market assets."

On "Regulatory" matters, they write, "U.S. and global regulators are focusing on the market conditions that existed in March 2020, and their impact on open-end funds, including institutional prime and municipal money market funds. The President's Working Group on Financial Markets (PWG) published a report on December 22, 2020 providing an "Overview of Recent Events and Potential Reform Options for Money Market Funds." The PWG Report reviews the effects of Covid-19 on the short-term funding markets, including institutional prime and municipal (or tax-exempt) money market funds which participate in those markets, and outlines ten possible reforms."

Federated continues, "On December 23, 2020, the SEC's Division of Investment Management released a statement on the PWG Report requesting comments to assist the Staff in providing recommendations to the SEC. The Staff requested comment in regard to three specific areas: (1) potential stress points for funds and short-term funding markets; (2) measures that can enhance the resilience and function of short-term funding markets; and (3) measures that can reduce the likelihood of future official sector interventions."

They explain, "Contrary to the focus placed by the PWG Report on money market funds as a cause of the market turmoil in March 2020, the ICI MMF Report supports the view that the Treasury securities markets, rather than money market funds, triggered the market turmoil. The ICI MMF Report rebukes suggestions that money market funds, particularly institutional prime money market funds, were a primary, if not the sole, cause of market distress in March 2020, noting that '[t]hese suggestions are inconsistent with the data and early press reports.'"

Federated adds, "As discussed above, one of the proposed reforms included in the PWG Report is to eliminate the requirement for a fund's board to consider imposing redemption gates and liquidity fees if weekly liquid assets drop below 30% of the fund's total assets.... Management believes money market funds provide a more attractive investment opportunity than other products, such as insured deposit account alternatives. Management also believes that money market funds are resilient investment products that have proven their resiliency during Covid-19. While Federated Hermes believes that some regulations could be improved, such improvements should be measured and appropriate, preserving investors' ability to invest in all types of money market funds. Federated Hermes believes that regulators should look closely at the redemption gates and liquidity fee requirement from the 2014 Money Fund Rules and Guidance and supports efforts to reduce regulation, including the PWG's recommendation to eliminate the redemption gates and liquidity fee requirement. Federated Hermes also continues to support efforts to permit the use of amortized cost valuation by, and override the floating NAV and certain other requirements imposed under the 2014 Money Fund Rules and Guidance for, institutional and municipal (or tax-exempt) money market funds. Legislation has been introduced in both the Senate and the House of Representatives in a continuing effort to get these revisions to money market fund reform regarding the use of amortized cost passed and signed into law."

They also tell us, "The activities of the Financial Stability Oversight Council (FSOC) also continue to be monitored by the investment management industry, including Federated Hermes.... FSOC has focused on potential risks in the asset management industry, including money market funds, and other types of cash management vehicles (such as local government investment pools) that continue to use amortized cost or have a stable NAV but are not subject to the 2014 Money Fund Rules and Guidance. The FSOC also has recommended that the SEC and other financial regulators monitor developments concerning such short-term cash management vehicles for any financial stability risk implications (such as liquidity, redemption risks and leverage). As discussed above, the market volatility and liquidity stress on money market funds experienced as a result of Covid-19 in March 2020 has drawn the attention of U.S. and global regulators, including FSOC. In its 2020 Annual Report, FSOC noted that "[s]tresses on prime and tax-exempt [money market funds] revealed continued structural vulnerabilities that led to increased redemptions and, in turn, contributed to and increased the stress in short-term funding markets."

Federated writes, "Management also is monitoring and assessing the potential impact of Covid-19 generally, and the impact of current low interest rate environment on money market fund and other fund asset flows, and related asset mixes, as well as the degree to which these factors impact Federated Hermes' prime and municipal (or tax-exempt) money market business and Federated Hermes' business, results of operations, financial condition and/or cash flows generally. Management is also monitoring the potential for additional regulatory scrutiny of money market funds, including prime and municipal (or tax-exempt) money market funds."

Regarding "International" regulatory issues, they comment, "Despite negative deposit interest rates, euro-denominated European money market funds have successfully operated and provided investors with high quality diversified investments which continue to provide same day liquidity, first through the use of an approved share cancellation methodology and more recently through the use of accumulating share classes. Federated Hermes continues to work with the FCA and the Central Bank of Ireland (CBI) on appropriate permissions to operate in each jurisdiction, in a manner similar to euro-denominated money market funds, should official rates in U.S. dollars or British pound sterling become negative. Additionally, Federated Hermes continues to work with the CBI on appropriate permissions to operate its U.S. dollar money market funds in a manner similar to euro-denominated money market funds, should official rates in U.S. dollars become negative."

The 10-K says, "The activities of the International Organization of Securities Commissions (IOSCO) and FSB also continue to be monitored by the investment management industry, including Federated Hermes.... On November 20, 2020, IOSCO published its final report providing a thematic review of the consistency in implementation of money market reforms across the nine largest money market fund jurisdictions. In this report, IOSCO concludes that these jurisdictions generally implemented money market fund reforms in line with 2012 IOSCO policy recommendations for money market funds, but that market conditions in March 2020 highlighted continuing vulnerabilities in certain types of money market funds and the need for further reform. Similar to the PWG in the U.S., IOSCO issued a paper on "Money Market Funds during the March-April Episode" ... in November 2020. The IOSCO Paper calls for further consideration of the functioning of money market funds, investor behavior and elements of the existing regulatory framework for money market funds which could have played a role in accelerating the outflow of assets from non-government money market funds in March 2020."

It also tells us, "In its 2020 Annual Report regarding the 'Implementation and Effects of the G20 Financial Regulatory Reforms', among other topics, the FSB reviewed the status of money market fund reforms across G20 jurisdictions, ongoing vulnerabilities from liquidity and leverage in asset management, and measures taken by financial regulators relating to funds (including money market funds) in response to Covid-19. The FSB also issued a report on its "Holistic Review of the March Market Turmoil" ... on November 17, 2020, in which it specifically reviewed the impact of the markets in March 2021 on open-end funds, including money market funds."

Federated adds, "As a result of these IOSCO and FSB reports, similar to the SEC in the U.S., UK and EU regulators are expected to re-examine existing money market fund regulation in 2021. As discussed above, Federated Hermes believes that money market funds are resilient investment products that have proven their resiliency during Covid-19. Federated Hermes intends to engage with UK and EU (as well as U.S.) regulators in 2021, both individually and through industry groups, to shape any further money market fund reforms to avoid overly burdensome requirements or the erosion of benefits that money market funds can provide."

They also state, "On December 16, 2020, ESMA published its 2020 update of the guidelines for money market fund stress tests under the Money Market Fund Regulation (MMFR). The updated guidelines provide specifications on the type of stress tests and their calibration to allow money market fund managers to have the information needed for reporting under the MMFR. The update takes into account the experience of money market funds in March 2020, particularly in relation to redemption scenarios. The updated 2020 guidelines will be required to be used for the first reporting period that is two months after publication of the translations of the updated guidelines. Federated Hermes has reviewed the updated guidelines and is taking steps to timely comply."

Finally, on the "Risk of Federated Hermes' Money Market Products' Ability to Maintain a Stable Net Asset Value," they warn, "Approximately 40% of Federated Hermes' total revenue for 2020 was attributable to money market assets. An investment in money market funds is neither insured nor guaranteed by the FDIC or any other government agency.... If the NAV of a Federated Hermes stable or constant NAV money market fund were to decline to less than $1.00 per share, such Federated Hermes money market fund would likely experience significant redemptions, resulting in reductions in AUM, loss of shareholder confidence and reputational harm, all of which could cause material adverse effects on Federated Hermes' business, results of operations, financial condition and/or cash flows."

At last week's "Credit Suisse Virtual Financial Services Forum," Federated Hermes CEO Chris Donahue, commenting on low rates and fee waivers, says, "We try to structure this whole enterprise so that what happens with rates, what happens with pandemics, what happens in the world, we can still do a great job for our clients. Now, specifically on the low rates ... we had gone from an announcement of $9 million a quarter, for the fourth quarter, of waivers, to $14 million for Q1 of '21. We're not changing that. In terms of the rates, in having recently spoken with our people about this, post-House testimony, our belief is that this stimulus is going to roll out by mid-March or so, and that will lead to more T-bill issuance and supply. So, we'd expect one or two basis points of increase in rates to come from that. Moreover, we also believe that they're going to start moving the repo rates, and the interest on excess reserve rates ... by five basis points each. The reverse repo from zero to five, and the IOER from 10 to 15. The reason is they like to have a base of about five in the short-term money market."

He comments, "The low rates are here, and we don't think that they're going to change that or blink this year. We're well aware of all the discussions of inflationary pressures and all of that. But ... 'What happens when they start to raise rates again?' Our experience is that the AUM goes up because you get more return on your cash. Obviously, the rates go up, waivers go down. But don't forget, the cash is always looking for a warm and loving home. And we always have a warm and loving home for all the cash. So to us, you look at things like increases in ... money supply, stimulus, all of this is more money flopping around in the system that will want to find at least a temporary home with money funds."

Donahue responds, "We're also bringing out 'Micro-Short' funds.... These are between ultra-shorts and money markets; the yields so far are right in between them, and we have very strong interest from clients in these products. I think they're going to do quite well. So, when you look at our positioning, growth, value, across the spectrum on fixed income, and across the spectrum on money markets, I think we are extraordinarily positioned as asset manager." (See our Feb. 4 Crane Data News, "Federated Hermes Enters Conservative Ultra-Short BF Market; ICD; CAG.")

When asked about consolidation, Donahue remarks, "The way that this business has changed over the last ten years is that there used to be well over 200 competitors in this business. Now if you look at the list there's about 50, and only 10 of them compete for money. It has in fact 'oligopolized'. Another big change that occurred was those amendments that were adopted in '14 and then implemented in '16, which basically eliminated the dollar-in-dollar-out $1 net asset value in prime funds for institutions. So, you had a trillion and a half dollars move out of prime and basically move into govies, a giant crowding out, and the muni funds weren't able to get to their previous peaks of about $500 billion. So that changed a lot."

Lastly, he comments, "The President's Working Group came up with a report recently, which basically was 'The Night of the Living Dead.' They brought up all the zombies which we had dispatched before and pretended as if they had never been dispatched. So, we will have to run through that again. One thing that they recognized was a problem with linking the 30% weekly liquidity with decisions about fees and gates on money funds, and that that triggered more problems than it ever solved. I think there's a real good shot that that gets changed, because that would basically enhance the whole effort. I do expect more regulation ... but what's really going on underneath is that the clients and issuers in the capital markets have great standing."