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The Investment Company Institute released its latest weekly "Money Market Fund Assets" report, which shows MMFs jumping by $​54.​3 billion, and its latest monthly "Trends in Mutual Fund Investing" and "Month-​End Portfolio Holdings of Taxable Money Funds" for March 2021. The monthly "Trends" report shows that money fund assets increased $​129.​4 billion in March to $​4.​497 trillion. This follows an increase of $​39.​4 billion in February and decreases of $​5.​2 billion in January, $​10.​0 billion in December and $​12.​0 billion in November. Assets also fell $​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 and $​399.​4 billion in April. For the 12 months through March 31, 2021, money fund assets have increased by $​159.​5 billion, or 3.​7%. (​Month-​to-​date in April, through 4/​28, MMF assets have increased by $​50.​2 billion according to our MFI Daily.)

ICI'​s weekly "Assets" release shows money fund assets up $​232 billion, or 5.​4%, year-​to-​date in 2021. Inst MMFs are up $​291 billion (​10.​5%), while Retail MMFs are down $​59 billion (-​3.​9%). Over the past 52 weeks, money fund assets have decreased by $​204 billion, or -​5.​4%, with Retail MMFs falling by $​87 billion (-​6.​1%) and Inst MMFs falling by $​117 billion (-​5.​0%). ICI'​s stats show Institutional MMFs increasing $​62.​9 billion and Retail MMFs decreasing $​3.​5 billion. Total Government MMF assets, including Treasury funds, were $​3.​928 trillion (​86.​7% of all money funds), while Total Prime MMFs were $​504.​8 billion (​11.​1%). Tax Exempt MMFs totaled $​96.​6 billion (​2.​1%). (​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.)

The release says, "Total money market fund assets increased by $​59.​35 billion to $​4.​53 trillion for the week ended Wednesday, April 28.... Among taxable money market funds, government funds increased by $​57.​17 billion and prime funds increased by $​1.​3.​05 billion. Tax-​exempt money market funds decreased by $​863 million."

It explains, "Assets of retail money market funds decreased by $​3.​50 billion to $​1.​47 trillion. Among retail funds, government money market fund assets decreased by $​1.​90 billion to $​1.​14 trillion, prime money market fund assets decreased by $​1.​03 billion to $​245.​11 billion, and tax-​exempt fund assets decreased by $​575 million to $​85.​86 billion." Retail assets account for just under a third of total assets, or 32.​4%, and Government Retail assets make up 77.​4% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $​62.​86 billion to $​3.​06 trillion. Among institutional funds, government money market fund assets increased by $​59.​06 billion to $​2.​79 trillion, prime money market fund assets increased by $​4.​09 billion to $​259.​66 billion, and tax-​exempt fund assets decreased by $​288 million to $​10.​73 billion." Institutional assets accounted for 67.​6% of all MMF assets, with Government Institutional assets making up 91.​2% of all Institutional MMF totals.

Their monthly release states, "The combined assets of the nation'​s mutual funds increased by $​476.​12 billion, or 2.​0 percent, to $​24.​77 trillion in March, 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 $​39.​14 billion in March, compared with an inflow of $​60.​21 billion in February.... Money market funds had an inflow of $​129.​49 billion in March, compared with an inflow of $​39.​38 billion in February. In March funds offered primarily to institutions had an inflow of $​145.​81 billion and funds offered primarily to individuals had an outflow of $​16.​32 billion."

The Institute'​s latest statistics show that Taxable MMFs gained assets last month while Tax Exempt MMFs lost assets. Taxable MMFs increased by $​131.​2 billion in March to $​4.​398 trillion. Tax-​Exempt MMFs decreased $​1.​8 billion to $​99.​3 billion. Taxable MMF assets increased year-​over-​year by $​188.​5 trillion (​4.​5%), while Tax-​Exempt funds fell by $​29.​0 billion over the past year (-​22.​6%). Bond fund assets increased by $​10.​2 billion in March to $​5.​302 trillion (​they broke above the $​5.​0 trillion level in October); they'​ve risen by $​884.​8 billion (​20.​0%) over the past year.

Money funds represent 18.​2% of all mutual fund assets (​up 0.​2% from the previous month), while bond funds account for 21.​4%, according to ICI. The total number of money market funds was 328 down three from the month prior and down from 360 a year ago. Taxable money funds numbered 261 funds, and tax-​exempt money funds numbered 67 funds.

ICI'​s "Month-​End Portfolio Holdings" confirms increases in Treasuries, Repo, Notes, and Other securities, and decreases in CP, CD and Agencies. Treasury holdings in Taxable money funds remain the largest composition segment (​since surpassing Repo last April). Treasury holdings increased by $​140.​9 billion, or 6.​3%, to $​2.​362 trillion, or 53.​7% of holdings. Treasury securities have increased by $​1.​096 trillion, or 86.​6%, over the past 12 months. (​See our April MF Portfolio Holdings: T-​Bills, Repo Skyrocket; Agencies, TDs Dip.")

Repurchase Agreements were in second place among composition segments; they increased by $​97.​1 billion, or9.​5%, to $​1.​120 trillion, or 25.​5% of holdings. Repo holdings have dropped $​351.​3 billion, or -​23.​9%, over the past year. U.​S. Government Agency securities were the third largest segment; they decreased $​33.​9 billion, or -​5.​6%, to $​573.​5 billion, or 13.​0% of holdings. Agency holdings have fallen by $​426.​8 billion, or -​42.​7%, over the past 12 months.

Certificates of Deposit (​CDs) remained in fourth place; they decreased by $​12.​8 billion, or -​6.​4%, to $​186.​1 billion (​4.​2% of assets). CDs held by money funds shrunk by $​54.​4 billion, or -​22.​6%, over 12 months. Commercial Paper took fifth place, down $​12.​2 billion, or -​6.​4%, to $​177.​3 billion (​4.​0% of assets). CP has decreased by $​43.​3 billion, or -​19.​6%, over one year. Other holdings increased to $​27.​8 billion (​0.​6% of assets), while Notes (​including Corporate and Bank) were up to $​4.​9 billion (​0.​1% of assets).

The Number of Accounts Outstanding in ICI'​s series for taxable money funds increased to 43.​146 million, while the Number of Funds was down two at 261. Over the past 12 months, the number of accounts rose by 3.​820 million and the number of funds decreased by 19. The Average Maturity of Portfolios was 44 days, down two from February. Over the past 12 months, WAMs of Taxable money have increased by 8.

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For weeks, we'​ve been discussing comment letters to the SEC in response to its "Request for Comment on Potential Money Market Fund Reform Measures in President'​s Working Group Report. Today, we finish off the remainder of letters from the 20 largest money fund complexes, and cite missives from SSGA, Invesco, T. Rowe Price and Western Asset. The 12th largest MMF manager, State Street Global Advisors, writes, "​The market volatility observed in March and April of 2020 was a real-​life stress test for global financial markets and the post-​2008 regulatory frameworks under which they operate. As the effects of the COVID-​19 pandemic rippled through the global economy, the exceptional and unprecedented demand for liquidity resulted in particularly acute pressure being felt in short-​term funding markets. The MMF sector, as a highly-​visible and transparent constituent of short-​term funding markets, also faced liquidity challenges, although this experience was not homogenous across the various types of MMFs. While government MMFs received exceptional inflows, suggesting they were the vehicle of choice for investors in their search for a safe haven, institutional prime MMFs faced substantive outflows. The market volatility seemingly only abated following the actions taken by the U.​S. Federal Reserve to stabilize markets, including the introduction of the Federal Reserve'​s Money Market Mutual Fund Liquidity Facility (​MMLF). This experience has once again brought policymaker scrutiny onto prime MMFs."

They explain, "State Street Global Advisors is supportive of efforts being undertaken by policymakers to improve the resilience of short-​term funding markets, including money market funds. However, it is important to recognize that the challenges faced by market participants were not limited to MMFs and, as such, an effective solution will not be found through further reforms to Rule 2a-​7 alone. In our view, the outcome of the review process and any subsequent reforms should also be targeted at addressing the underlying issues observed during the pandemic-​related market stress, which was inherently a liquidity-​driven episode caused by extreme uncertainty and market volatility spikes that led to dislocations, temporary shortages of liquidity and valuation issues in parts of the market. In addition, future reforms to money market funds should not undermine the ongoing viability of prime MMFs."

SSGA'​s letter adds, "​As described in more detail in our response, we believe prime MMFs continue to play a valuable and crucial role, whether as an investment vehicle for investors, as a source of funding for issuers and the real economy, and as facilitators of liquidity for financial markets more broadly. Nevertheless, we acknowledge the challenges faced by short-​term funding markets during March and April 2020 and provide some key observations in this regard. Finally, as part of our response, we propose a number of key principles that we believe should underpin future reforms, paying due regard to the options outlined in the PWG Report."

It also tells us, "[W]​e believe that eliminating prime MMFs, either directly or indirectly through new regulatory requirements that are not commercially feasible, would have a material detrimental impact on investors and the real economy. We are concerned that some policymakers may be making the assumption that cash typically invested in prime money market funds could simply move to other investment vehicles, such as government MMFs or bank deposits, with no harm or distress to the system. However, post-​global financial crisis (​GFC) reforms to prudential requirements for banks has resulted in their becoming less willing to accept short-​term operational cash, given this is relatively more capital intensive to accommodate. Similarly, the comparatively low yield offered by these products may result in some investors seeking opportunities in less transparent and more thinly regulated investment vehicles. Given the highly-​regulated and highly-​transparent regulatory framework for MMFs, we believe this would be a sub-​optimal outcome from a public policy perspective."

State Street'​s Matthew Steinaway comments, "The final principle is that reforms should avoid the need for external support, whether that be from the public sector or indeed the fund sponsor and/​or its affiliates. With regards to the former, while we do not have specific solutions at this stage, we are confident and willing to work with policymakers to develop a robust framework that ensures the viability of prime MMFs while reducing the potential need for future support from public authorities. Notwithstanding this, we believe there should be recognition that during periods of extreme market stress, or '​black swan' events, normal functioning may only be restored through policymaker intervention. We note that this was reflected in comments made by Mark Carney, former Governor of the Bank of England and Chair of the Financial Stability Board, and Gary Cohn, former Director of the U.​S. National Economic Council during the SEC'​s Roundtable on Interconnectedness and Risk in U.​S. Credit Markets in October 2020."

Another comment letter, submitted by Invesco, tells us, "Invesco has a tremendous commitment to the money fund industry not only in the US, but across the globe [​and] appreciates the opportunity to provide the Commission with our perspective on the PWG Report.... Invesco recognizes that there are critical adjustments that need to be made to previous money market reform measures to make MMFs more resilient to market disruptions so they may continue to provide safe and liquid investments to retail and institutional investors. Invesco generally supports and is largely aligned with the positions expressed by the Investment Company Institute and the Securities Industry and Financial Markets Association in their separate comment letters to the Commission regarding the Request. We believe the regulatory focus should be on issues which would improve market structure and liquidity for all participants in the short-​term funding markets and reduce shareholder uncertainty in MMFs by delinking fees and gates from specific portfolio liquidity levels."

They write, "As has been noted in other comment letters, Invesco agrees with the exclusion of government MMFs from future rulemaking. Government MMFs provide an important liquidity vehicle for retail and institutional investors, and in reviewing investor behavior during and since the 2020 financial crisis, government MMFs have performed well and are not in need of additional reform. With respect to floating net asset values ('​NAVs') on all prime and tax-​exempt money market funds, we agree with our colleagues at the ICI and SIFMA that floating NAVs for retail funds would be confusing to individual investors, would not change investor behavior in times of market stress and thereby would not attain the desired goals of the Commission. It is our view that retail investors would withdraw from floating NAV MMFs in lieu of either stable NAV government funds or bank products."

Invesco states, "​In reviewing and assessing any potential structural changes to institutional prime MMFs, it is important to conduct the review in light of and informed by the market events of late February and early March 2020 in order to ascertain the root cause of the market disruption and whether any change to MMFs would provide more stability to investors. Money market funds did not cause market instability and they were only one of many participants in the short-​term funding markets; rather it was the unprecedented '​dash for cash' more broadly and uncertainty about access to cash in institutional prime MMFs that influenced investor behavior which exacerbated an already unstable market. We believe changes to policy and rulemaking should be thoughtful and healthy for the industry with a goal of also avoiding further consolidation in an already highly concentrated field."

They also say, "​As markets and participants struggled to manage events impacting their personal and professional lives, uncertainty reigned, and cash was required at any price. The Fed, in conjunction with the Treasury Department, acted quickly and announced multiple programs such as the Commercial Paper Funding Facility (​CPFF), the Primary Dealer Credit Facility (​PDCF) and the Money Market Mutual Fund Liquidity Facility (​MMLF). '​The facilities gave investors confidence that they could access their cash when needed and that companies would be able to roll over CP when needed, relieving selling pressures'.... [T]​he mere announcement provided stability to the markets ahead of actual implementation, and given the low take-​up of the facilities, the existence versus actual usage of support, provided assurance and certainty."

Invesco adds, "​The increased transparency requirements have allowed investors to make better informed decisions with respect to their investments in MMFs. Money market funds are safer and more transparent than any other type of mutual fund, which is a benefit not only to investors but also to regulators to help track and monitor risks in what can be an opaque market. The short-​term funding markets will always exist in some form and having a transparent market participant with the structure and characteristics of money market funds provides a benefit to all market participants. Reforms that make MMFs less viable from a business perspective, more bank-​like in nature, and less competitive from a yield perspective will in effect eliminate the usage and efficacy of MMFs and not eliminate any short-​term funding risk in the markets."

T. Rowe Price'​s comment letter says, "It is undoubtedly worthwhile to study the unprecedented March 2020 events in the financial markets and assess whether the resiliency and strength of our markets can be improved. We also recognize the importance of money market funds to institutional and retail investors, and the role these funds play in the broader economy. Accordingly, we appreciate the efforts of the President'​s Working Group to identify policy changes for consideration and the opportunity afforded by the Securities and Exchange Commission to comment on those ideas with respect to money market funds. We also encourage policymakers to evaluate other segments of and participants in the short-​term markets to determine if other areas should be adjusted to mitigate risks."

It explains, "We are writing to provide our perspectives on the de-​linking of fees and gates, the distinction between institutional and retail money market funds, and the feasibility of swing pricing in different contexts. As discussed in more detail below: We believe the ability of a money market fund to impose fees and gates should be de-​linked from the 30% weekly liquid assets threshold; Beyond this de-​linking, we do not believe further policy measures should be considered for retail money market funds; and While we do not support swing pricing for US money market mutual funds, we think the concept continues to warrant study for other US open-​end mutual funds."

Finally, Western Asset comments, "We stress, however, that we consider it unlikely that amendments to Rule 2a-​7 could avert a systemic market crisis of the scale and type triggered by the COVID-​19 pandemic while still preserving money market funds and their benefits.... In considering changes to Rule 2a-​7 we strongly urge policymakers to consider the structure of the short-​term funding markets, including an assessment by market participants of possible improvements to increase liquidity for the commercial paper (​CP) and other relevant short-​term sectors, or changes in financial services regulation beyond money market funds, including regulations related to bank liquidity coverage, funding and leverage ratios that might more effectively support dealer intermediation in times of crisis."

They add, "​Western Asset manages a number of prime money market portfolios, including funds complying with Rule 2a-​7, and the European Union Money Market Fund regulations.... Western Asset'​s trading counterparties consistently stated that they had little to no capability to act as principal on transactions due to internal risk constraints and regulatory requirements.... We recommend the following for institutional and retail prime and tax-​exempt money market funds: De-​linking of fees and gates and liquidity thresholds.... Limited use of redemption gates.... Enhance Fund Boards' discretion over use of fees and gates.... Adoption of detailed policies and procedures for fees and gates.... [​and] Consideration given to increasing WLA threshold."

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Since the April 12 deadline passed, we'​ve been highlighting a number of comment letters submitted in response to the SEC'​s "Request for Comment on Potential Money Market Fund Reform Measures in President'​s Working Group Report." Today, we quote from several more of the largest money fund managers -- Dreyfus, Wells Fargo and Northern (​who rank 8, 9 and 10 in money fund market share). The first of these says, "Dreyfus Cash Investment Strategies, a division of BNY Mellon Investment Adviser, Inc., welcomes the opportunity to comment on the money market fund reform options discussed in the 'Report of the President'​s Working Group on Financial Markets: Overview of Recent Events and Potential Reform Options for Money Market Funds'.... As of March 31, 2021, BNYM Investment Adviser ... managed approximately $​215.​3 billion invested in 25 domestic money market mutual funds structured within the confines of Rule 2a-​7 under the Investment Company Act of 1940." (Note: Please join us for our next webinar, "Handicapping Money Fund Reforms," which will take place Thursday, May 20 from 2-​3pm (​EDT).)

It continues, "BNYM Investment Adviser supports the Report'​s overarching goals for money market fund reform: effectively addressing the structural vulnerabilities in money market funds that have been impacted by stress in short-​term funding markets, improvement of the resilience and functioning of short-​term funding markets, and reducing the likelihood that interventions and taxpayer support would be needed to prevent future money market fund runs or address stresses in short-​term funding markets. The 2008 financial crisis and the 2020 financial crisis had similar market impacts, including investor runs on institutional prime money market funds and a freezing of the short-​term credit market. However, it is important to note that these two crises diverge in a key respect -- their causes."

Dreyfus Cash Investment Strategies' CIO John Tobin explains, "​The 2008 financial crisis was caused by several factors, including failed counterparty credit risk. The 2020 financial crisis was triggered by a global pandemic which highlighted structural deficiencies in the short-​term funding market and severely reduced and hampered liquidity in these markets. Money market funds did not cause the market stress that the industry experienced in March 2020, but were adversely impacted by it. Therefore, we support the effort underway to review such vulnerabilities and to further enhance the resiliency of money market funds to meet investor expectations and redemptions in various market conditions."

He comments, "​BNYM Investment Adviser has assessed the ten reform options offered by PWG in its Report. Due to the breadth of suggestions offered, we are focusing on specific suggestions that we believe would have the greatest potential to support the continued smooth functioning of the money market fund industry in various market environments. The three reform options that we believe would be most impactful are (​i) the decoupling money market fund weekly liquidity and liquidity fee and redemption gate thresholds, (​ii) reform of conditions for imposing redemption gates and (​iii) money market fund weekly liquidity management changes. With regard to this third reform option, we have included an additional suggestion which is not included in the Report, but which we believe further supports the goals of the Report. This suggestion is to require prime money market funds to hold a minimum investment in securities issued by the U.​S. government."

Dreyfus adds, "​BNYM Investment Adviser has considered the remaining seven reform options proposed in the Report. We are not inclined to support these options for the various reasons outlined in more detail in Section D of this letter and in the comment letter from the Investment Company Institute, dated April 12, 2021. However, we appreciate the opportunity to address the Commission directly with our own comments at a future date, if desired.... We believe that a WLA Portfolio Minimum of 35%, instead of 30%, would be a simple and straightforward adaption for the industry.... We propose a minimum investment of 10% in Treasury securities for prime money market funds."

Wells Fargo Funds Management'​s letter, written by President Andrew Owen, states, "On behalf of Wells Fargo & Company and its subsidiaries, Wells Fargo Funds Management, LLC appreciates the opportunity to respond to the request by the U.​S. Securities and Exchange Commission for comments on potential money market fund reform measures.... Funds Management serves as the investment manager to the Wells Fargo Funds. Our fund family offers a diverse set of government, prime and tax-​exempt MMFs across multiple distribution platforms that include retail and institutional investors.... Assets under management in the Wells Fargo Money Market Funds totaled approximately $​194 billion as of March 31, 2021. In managing the Wells Fargo Money Market Funds, we emphasize conservative investment choices and make preservation of capital and liquidity our highest priority."

The letter points out, "We think it important to note that prime and tax-​exempt MMFs functioned largely as intended following the reforms of 2010 and 2014; specifically, the floating net asset value ('​FNAV') requirement for institutional MMFs provided the price discovery that reforms intended to produce, while ensuring shareholders bore the cost of their liquidity needs. However, the events of March 2020 demonstrated that, despite the FNAV, such funds may still be susceptible to '​runs.' While the runs experienced during the 2008 global financial crisis were precipitated by credit events, March 2020 demonstrated that runs may also be caused by liquidity events, as investors, particularly institutional investors, became concerned that redemption gates would be imposed.... These investor concerns likely were fueled by the perception that permitting funds the option of imposing liquidity fees and redemption gates if their WLAs fell below the minimum 30% threshold was a requirement that they do so. In this sense, the 2014 reforms, which were in large part enacted in order to reduce the risk of runs, may have simply swapped one kind of trigger event for another, as a fund'​s WLA level replaced a fund'​s shadow NAV as the trigger which causes institutional investors to redeem."

Wells tells us, "We believe that this phenomenon illustrates that it may be more challenging, if not impossible, to solve for or eliminate run risks entirely. Rather, regulators and the industry should focus on solutions which mitigate redemption risk as much as possible, while ensuring that any additional reforms that are introduced do not threaten the viability of prime and tax-​exempt MMFs in the future or impose unnecessary operating costs on MMF sponsors. Properly functioning short-​term markets are important for economic growth; they provide a means for companies, municipalities, and the Federal government to finance short term needs. Prime and tax-​exempt MMFs are an important tool in providing that financing, and any goal of regulatory reform should be undertaken with a view to ensuring such MMFs can continue to operate in an effective manner."

They add, "​In our comments, we do not intend to address all potential policy measures highlighted in the PWG report. In our view, some measures do not address either the functioning of short-​term markets or enhance the operation of FNAV MMFs; examples of such measures would be liquidity buffers, the minimum balance at risk, FNAVs for all prime and tax-​exempt MMFs, and capital buffers. Other measures, such as swing pricing, a liquidity exchange bank, and new guidelines regarding sponsor support, in our view, present financial, operational, or regulatory challenges that would make them unworkable. With respect to the potential policy measures noted above, we participated in the development of and largely support the comments and recommendations made by the Investment Company Institute ('​ICI') in its comment letter. We intend to focus our comments on three potential policy measures highlighted in the PWG report, namely (​1) the removal of the tie between MMF liquidity and fee and gate thresholds, which we would support, (​2) MMF liquidity management changes, which we would not support, and (​3) countercyclical weekly liquid asset requirements, which we would not support."

Finally, a comment letter from Northern Trust Asset Management says, "In 2020, NTAM initiated a thoughtful progression of modifications to its MMF lineup to exit the prime and tax-​exempt MMF sectors, a process that began with the closure in May 2020 of our institutional prime MMF, the Northern Institutional Funds - Prime Obligations Portfolio. These MMF product lineup changes were grounded in (​1) NTAM'​s long-​term views on interest rates, (​2) shifting investor preferences and (​3) the potential for future MMF regulatory changes.... For the foreseeable future, NTAM views government MMFs as the optimal solution for investors' immediate operational cash needs. The Commission has correctly acknowledged that during times of stress, government MMFs have served as an important source of liquidity for investors seeking stability.... We believe it is important that government MMFs be allowed to continue to operate under their current regulatory framework. Any regulatory changes that are designed to address the challenges or limitations associated with prime or tax-​exempt MMFs should be targeted specifically to those types of MMFs that experienced such challenges or limitations in March 2020 rather than applied indiscriminately to all MMFs."

It continues, "To that end, to be effective we believe any additional regulation of prime and tax-​exempt MMFs should be reasonably designed to meet two fundamental objectives: (​1) Address prime and tax-​exempt MMFs' structural vulnerabilities, but in a manner that does not unnecessarily increase the cost or complexity of operating these categories of MMFs for investors and sponsors; and Reduce the likelihood of official sector interventions relating to prime and tax-​exempt MMFs and increase transparency for investors in these types of MMFs. We think it important to note that there is no failsafe regulatory solution -- no '​silver bullet' -- that can address definitively the challenges presented by investors' understandable inclination to respond to market disruption or uncertainty by seeking to reduce their exposures to riskier or less liquid assets. [​W]​e believe the Commission should avoid adopting a series of new additional requirements generally for MMFs, with potentially duplicative or redundant effects, when a more targeted response would more appropriately and effectively address the issues faced by only certain types of MMFs in March 2020."

In a section entitled, "PWG Report Proposal That May Advance the Goals of Reform," Northern explains, "Of the ten potential policy measures outlined in the PWG Report, we believe that transitioning to a floating NAV structure for retail prime and tax-​exempt MMFs is the most constructive and appropriate. Such a change would enhance transparency and investor recognition of the credit risks associated with prime and tax-​exempt MMFs and require market dynamics, as reflected in changes in the market value of a MMF'​s portfolio holdings, to be priced into the NAV at which investors in these MMFs purchase and redeem shares. A floating NAV structure would also align the structure of retail prime and tax-​exempt MMFs with that of comparable institutional MMFs, which were required to transition to floating NAVs as a result of regulatory changes adopted by the Commission in 2014."

They state, "Retail prime and tax-​exempt MMFs experienced notable asset outflows in March 2020, which likely would have continued or accelerated without official sector intervention. During March 2020, retail prime and tax-​exempt MMFs continued to issue and redeem shares at $​1.​00 even though their market-​based NAVs declined. Market-​based NAVs had generally recovered by the end of the month. If these retail prime and tax-​exempt MMFs had processed redemption transactions during the period of market disruption at their underlying NAVs rather than at a stable $​1.​00 per share, redeeming investors would have borne the effects of the short-​term decline in portfolio value. This could have served to deter some redemptions and decrease retail prime and tax-​exempt MMFs' vulnerabilities to runs by mitigating the first mover advantage for redeeming investors, thus enhancing the stability of the sector and therefore the overall short-​term funding markets."

Northern'​s Head of Fixed Income Colin Robertson writes, "​In a 2013 letter to the Commission on proposed MMF reforms, Northern Trust expressed the view that a floating NAV structure for prime institutional MMFs was the most appropriate structural change among various alternatives that were then under consideration by the Commission. We now believe that a similar change for retail prime and tax-​exempt MMFs would be appropriate. The adoption of a floating NAV structure for institutional prime MMF investors was readily understood in the marketplace at the time, insofar as it conformed the share valuation rubric for those MMFs to that of most other mutual funds. Anecdotally, we understand that institutional investors adapted to the concept of a floating NAV much more readily than to the liquidity fee and redemption gate provisions adopted in 2014. We believe that retail investors would similarly easily understand the floating NAV construct."

He adds, "In our September 2013 comments, we expressed the view that a combination of both a floating NAV requirement and liquidity fees and redemption gates was the least satisfactory alternative. It remains our view that a floating NAV is the most appropriate policy option for prime and tax-​exempt MMFs, and we continue to question whether, if a MMF has a floating NAV, liquidity fees and redemption gates are necessary or appropriate. As the PWG Report itself notes, liquidity fees and redemption gates may '​have the unintended effect of triggering preemptive investor redemptions' by MMF shareholders whose redemptions are motivated by the desire to avoid the imposition of a liquidity fee or redemption gate. We believe it is possible that many investors in institutional prime MMFs were motivated to redeem their shares in March 2020 less out of concern regarding possible declines in those MMFs' NAVs than out of concern that, if they delayed redeeming, their investment might later be adversely affected by the imposition of liquidity fees or redemption gates. We therefore urge the Commission to consider the possibility that liquidity fees and redemption gates detract from rather than enhance the resiliency of MMFs and therefore the short-​term funding markets."

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This month, MFI interviews BNY Mellon Managing Director and Head of Liquidity Services, George Maganas, who is in charge of the firm'​s money market fund trading "​portal," Liquidity Direct. Maganas reviews the history of one of the industry'​s largest and oldest portals, and BNY'​s main priorities and biggest challenges going forward. He also discusses the current portal marketplace and how they'​re working to make "​clients' workflow more efficient." Our Q&​A follows. (Note: The following is reprinted from the April issue of Money Fund Intelligence, which was published on April 7. Contact us at info@​cranedata.​com to request the full issue or to subscribe.)

MFI: Give us a little history about the platform and about yourself. Maganas: Liquidity Direct was established as an innovator in the money market fund space over 20 years ago. From the start, our focus was on providing efficiencies for our clients, and for their liquidity management and investment processes. We continue to innovate and provide superior performance for our clients globally. Beyond Liquidity Direct, BNY Mellon'​s affiliate Dreyfus has been in the money fund manufacturing and distribution business for over 50 years, and we really believe that depth and breadth of experience is evident in our product offering. When you combine the manufacturing, asset servicing and distribution capabilities across our investment management business, the Bank platform and Pershing, you can really see that BNYM is a significant participant that plays a critical role in the money fund industry.

Personally, I'​ve been involved with Liquidity Direct for the past three years, leading our business development activities. Prior to that, I'​ve been in global markets for over 25 years in various roles, from running electronic trading to operating other platform businesses, such as leading an FCM. Prior to this role, my experience with money market funds has been primarily as an end user at an FCM.

MFI: What are your big priorities? Maganas: Firstly, I'​d say the pandemic created a very different environment that we'​ve been operating in for the last year. Consequently, our focus has been ensuring that we are here for our clients and more importantly, that they can interact with us in any manner that they choose. We'​ve seen that focus pay off: over the past year, we'​ve experienced record client volumes, well above industry growth. In many ways, the Liquidity Direct portal is a representation of the BNY Mellon ecosystem, and it'​s quite unique.

To understand that point, it'​s important to consider that the platform is underpinned by our custody business, with an astonishing $​41 trillion of assets under custody. In addition, the portal is directly integrated into our Global Treasury Services businesses, which combines payments, liquidity, trade and finance. So, I think the way that we connect dots and leverage the power of the BNY ecosystem is a valuable proposition and a real differentiator.

Clearly, we'​re conscious of the environment and that our clients are looking for additional investment options, and we'​re working hard to exceed those expectations. To give you a great example, we'​re delighted that on Liquidity Direct we'​re going to be offering clients the capability to invest their cash in cleared repo via the BNY Mellon sponsored repo program through FICC. This is the first time a liquidity portal has provided its clients with this type of offering and given them the ability to transact directly on the portal. This will give them access to new yield characteristics and exposure to new counterparties. It'​s an exciting next step for us at Liquidity Direct.

I would also be remiss not to mention the linkage of Liquidity Direct into BNY Mellon'​s $​3 trillion-​plus collateral management business, which allows our clients to transform and pledge money market funds as collateral. Money funds as a form of collateral has proven challenging due to a lack of mobility. But with UMR Phase 5 impacting buy-​side entities around the globe, clients now have the ability to add money market funds to our triparty platform, incorporate them as an asset class into the cheapest-​to-​deliver collateral rule-​set and enable them to be seamlessly orchestrated by BNY Mellon.

MFI: Tell us about the portal marketplace. Maganas: We continue to see interest in portals, obviously, with more clients moving towards utilizing these types of platforms. What we'​re seeing is that there'​s more investment at these venues in capabilities across the spectrum, with a focus on product, analytics, distribution and third party integration, which I think is great news for clients. We'​re excited about the possibilities on our portal. There'​s a saying at BNY Mellon, "consider everything," and being a trusted partner underscores the foundation of who we are. We hold that bond with our clients close to our heart and our aim is really to deliver client solutions and solve problems.

So we'​re working really hard to deliver additional short-​term investment options for clients. We want to provide a digital ecosystem across cash, cash equivalents and short-​term investments, and create efficiencies for our clients and their liquidity and investment processes. Last year we announced the integration of our client experience with GTreasury, and that is just one recent example of the efficiencies we'​re focused on delivering. We continue to innovate and look for ways to make sure that our clients' workflow is more efficient and that we are integrated seamlessly into their ecosystem. I think a lot about the challenges clients face with managing data across multiple banking providers, regions, systems, accounts, etc., so a key driver for us is providing a frictionless environment for our clients. Another key area where we'​re working to enhance our services and analytical tools ... is around providing support to enable them to navigate the investment decision process with ESG analytics and mandates. So, I guess it'​s fair to say we have a lot on our plate, but we'​re pretty excited about the roadmap.

MFI: What challenges are you facing? Maganas: Right now the biggest challenge undoubtedly is that the fund companies are contending with the near-​term issues presented by interest rates, and the challenge of just meeting the yield needs of clients. And then, obviously the industry is dealing with the impact of low interest rates, resulting in fee waivers. Yield is a big factor and an important one, but we also need to provide our clients with safety and efficiencies. We'​re really focused on that vertical infrastructure across banking, liquidity and investments. Without that vertical integration, which in my mind is going to become standard, it'​s going to be very hard to compete. And finally, with the additional set of capabilities that we'​re adding, it'​s going to be very important that we make it very efficient for our clients to interact with us.

MFI: What about fee pressure? Maganas: It'​s pretty public through our announcements to the market, that fee waivers are impacting us, but we have an unwavering commitment to our clients. We'​ve got a long-​term view, and a very resilient business model. We'​re very committed to servicing our clients through all phases of the business cycle. We have been here before -- though maybe not in quite as severe a rate environment -- but even amid this backdrop, we'​ve increased our investment in Liquidity Direct. Yes, it'​s something that obviously is impacting the industry, but we take more of a long-​term view.

MFI: Talk about last March. Maganas: What resonated with me, amongst all the hardship, was the way BNY Mellon mobilized, and really performed the critical function it provides in the financial system, and remained resilient in the face of the global pandemic. When I consider industry growth was around perhaps 20%, our portal saw growth of 50%, which speaks to the trust and scale of our offering. In addition, it reinforced the safety and the value of the money fund asset class during times of stress and it really demonstrated the liquidity and safety it can provide. With regards to prime funds, clearly there was an exogenous shock in the market. Based on the data we'​re seeing, and the AUM in these instruments, things have normalized somewhat. We'​ve seen some prime fund partners exit the business. However, clients remain committed to the segment. It'​s clear we'​re going to see some regulatory reforms down the road, but it'​s still a $​650 billion industry. I remain optimistic we will end up with a viable asset class post-​reform.

MFI: Talk about your customer base. Maganas: We support all of the institutional segments that source and use money market funds. We see different characteristics of flows based on the idiosyncrasies of markets and the uses and sources of money funds. Undoubtedly, certain segments were more active during the market volatility. [​We saw] a buildup of liquidity in the corporate space, because obviously, corporates were building fortress balance sheets by pulling down on revolvers and through debt issuance.... Beyond corporates, [​clients] include governments, states, alternatives, fund managers and insurance companies.

MFI: Are you looking at ultra-​short, SMAs? Maganas: We'​re seeing growth and interest in those sectors. We'​ve got a very deliberate product offering and dedicated clients in that space. What I would say with regard to ultra-​shorts is that our affiliates Dreyfus and Insight support these products, and we have great experience in running separately managed accounts. For the Liquidity Direct portal, we have an investment roadmap to expand our offering of short-​term investments and that includes ultra-​shorts.

MFI: What is your outlook for the future? Maganas: I'​d say for the future of money market funds, they'​re going to continue to be as important as they have always been. Inextricably, they'​re linked to the financial system and represent a key source of funding to the market. I believe technology is going to impact the way that clients consume and interact with money funds. And with our clients, we'​re going to continue to reimagine the interaction and evolve the money fund investing ecosystem. Ultimately we'​re excited: we'​ve got a really comprehensive client agenda this year, both for the portal and in terms of adding short-​term investments, and we'​re really focused on trying to ameliorate some of the pressures our clients are experiencing.

​

ICI published a new "Viewpoint," entitled, "On Closer Look, a Very Different Picture of Funds' Role in the Commercial Paper Market." Author Shelly Antoniewicz tells us, "New analysis by ICI shows that prime money market funds did not pull back significantly from the commercial paper market during the height of the market turmoil and '​dash for cash' triggered by the COVID-​19 health crisis in March 2020. That'​s not what the President'​s Working Group on Financial Markets report on money market funds (​PWG Report) suggests. That report notes that two categories of prime money market funds -- public institutional funds and retail funds -- reduced their holdings of commercial paper by $​35 billion from March 10 to March 24, and '​this reduction accounted for 74 percent of the $​48 billion overall decline in outstanding commercial paper over those two weeks.' The implication: prime money market funds helped fuel the meltdown in the commercial paper market." (Note: Thanks again to those who attended last week'​s ESG & Social Money Fund Update! Click here to see the recording or visit our Money Fund Webinars 2021 page to access the Powerpoint.)

She explains, "The PWG Report leaves out three critical facts, and taking those into account produces a very different picture of prime money market fund activity in the commercial paper market -- especially when combined with new ICI research on the daily purchases and sales by those funds. What does the PWG Report fail to say? First, the time period the PWG analyzed straddles the March 18 announcement of the Federal Reserve'​s Money Market Mutual Fund Liquidity Facility (​MMLF) -- a facility designed to buy commercial paper from prime money market funds. Two-​thirds of the reduction in prime funds' commercial paper holdings cited by the PWG -- $​23 billion of the $​35 billion -- occurred after the Fed'​s announcement and was driven by funds' sales of commercial paper that were ultimately pledged to the facility. Those sales did not destabilize the commercial paper market -- indeed, the Fed explicitly stated that sales to the MMLF helped relieve stresses."

The ICI post continues, "Second, prime money market funds' sales of commercial paper during the market turmoil were a small share of the $​28.​8 billion decline in outstanding nonfinancial and financial commercial paper in the week ended March 18. Public institutional and retail prime money market funds together reduced their holdings of such commercial paper during that week by only $​5.​6 billion -- accounting for only 19 percent of the total reduction. The rest -- 81 percent of the decline -- was driven by other participants in the commercial paper market."

It says, "Third, sales of commercial paper to the MMLF after March 18 were driven largely by prime money market funds' efforts to keep their weekly liquid assets well above the 30 percent threshold that could trigger fees or gates on the funds. In other words, funds sold commercial paper to avoid a regulatory tripwire that is a legacy of the prior round of money market fund reform in 2014."

The Viewpoint adds, "Taken together, these three critical facts undermine claims that prime money market funds caused the commercial paper market to freeze in March 2020. They also demonstrate that regulators must examine the activities and behavior of all market participants before proposing reforms for prime money market funds. Only by doing so will policymakers make progress toward their goal of making the financial system more resilient in the face of a liquidity shock of the nature experienced in March 2020."

It summarizes, "In this blog post, I'​ll discuss the first two sets of facts above -- the experience of prime money market funds during the market turmoil prior to the Fed'​s March 18 MMLF announcement. In a related post, I'​ll present new research on how prime money market funds used the MMLF to keep their weekly liquid assets well above the 30 percent threshold -- a regulatory constraint that effectively precluded funds from using much of their existing liquidity to meet redemptions."

In other news, the New York Times writes, "Money Market Funds Melted in Pandemic Panic. Now They'​re Under Scrutiny." The article explains, "​The Federal Reserve swooped in to save money market mutual funds for the second time in 12 years in March 2020, exposing regulatory shortfalls that persisted even after the 2008 financial crisis. Now, the savings vehicles could be headed for a more serious overhaul."

The piece continues, "The Securities and Exchange Commission in February requested comment on a government report that singled out money market funds as a financial vulnerability -- an important first step toward revamping the investment vehicles, which households and corporations alike use to eke out higher returns on their cashlike savings. Treasury Secretary Janet L. Yellen has repeatedly suggested that the funds need to be fixed, and authorities in the United States and around the world have agreed that they were an important part of what went wrong when markets melted down a year ago."

It tells us, "The reason: The funds, which contain a wide variety of holdings like short-​term corporate debt and municipal debt, are deeply interlinked with the broader financial system. Consumers expect to get their cash back rapidly in times of trouble. In March last year, the funds helped push the financial system closer to a collapse as they dumped their holdings in an effort to return cash to nervous investors."

The Times also says, "But there are questions about whether the political will to overhaul the fragile investments will be up to the complicated task. Regulators were aware that efforts to fix vulnerabilities in money funds had fallen short after the 2008 financial crisis, but industry lobbying prevented more aggressive action. And this time, the push will not be riding on a wave of popular anger toward Wall Street. Much of the public may be unaware that the financial system tiptoed on the brink of disaster in 2020, because swift Fed actions averted protracted pain."

They add, "​Division lines are already forming, based on comments provided to the S.​E.​C. The industry used its submissions to dispute the depth of problems and warn against hasty action. At least one firm argued that the money market funds in question didn'​t actually experience runs in March 2020. Those in favor of changes argued that something must be done to prevent an inevitable and costly repeat."

​

The Securities and Exchange Commission'​s latest monthly "Money Market Fund Statistics" summary shows that total money fund assets jumped $​146.​1 billion in March to $​4.​994 trillion. (Month-​to-​date in April assets are down $​12.​2 billion through 4/​21, according to our MFI Daily.) The SEC shows that Prime MMFs rose by $​7.​2 billion in March to $​927.​9 billion, Govt & Treasury funds skyrocketed $​140.​9 billion to $​3.​958 trillion and Tax Exempt funds decreased $​2.​0 billion to $​108.​2 billion. Yields were mixed in March. 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: Thanks to those who attended our ESG & Social Money Fund Update yesterday! If you missed it, click here for the recording.)

March'​s overall asset increase follows an increase of $​30.​5 billion in February and $​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 3/​31/​21, total MMF assets have increased by an impressive $​959.​8 billion, or 23.​8%, 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.​994 trillion in assets, $​927.​9 billion was in Prime funds, up $​7.​2 billion in March. This follows a decrease of $​29.​2 billion in February, 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 18.​6% of total assets at the end of March. They'​ve decreased by $​56.​9 billion, or -​5.​8%, over the past 12 months.

Government & Treasury funds totaled $​3.​958 trillion, or 79.​3% of assets. They jumped $​140.​9 billion in March, after increasing $​64.​3 billion in February, 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 $​335.​7 billion over 12 months, or 9.​3%. Tax Exempt Funds decreased $​2.​0 billion to $​108.​2 billion, or 2.​2% of all assets. The number of money funds was 330 in March, down nine from the previous month, and down 32 funds from a year earlier.

Yields for Taxable MMFs were mixed in March. Steady declines over the previous 24 months follow 25 months of straight increases. The Weighted Average Gross 7-​Day Yield for Prime Institutional Funds on March 31 was 0.​12%, down a basis point from the previous month. The Weighted Average Gross 7-​Day Yield for Prime Retail MMFs was 0.​17%, down a basis point. Gross yields were 0.​08% for Government Funds, down two basis points from last month. Gross yields for Treasury Funds were also down two basis points at 0.​07%. Gross Yields for Muni Institutional MMFs were up two basis points at 0.​09% in March. Gross Yields for Muni Retail funds were up a basis point at 0.​13% in March.

The Weighted Average 7-​Day Net Yield for Prime Institutional MMFs was 0.​07%, down a basis point from the previous month and down four basis points since 12/​31/​20. The Average Net Yield for Prime Retail Funds was 0.​02%, unchanged 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 up two basis points from February at 0.​04%. Net Yields for Muni Retail funds were unchanged at 0.​01% in March. (​Note: These averages are asset-​weighted.)

WALs and WAMs were down across the board in March. The average Weighted Average Life, or WAL, was 58.​2 days (​down 4.​5 days from last month) for Prime Institutional funds, and 51.​3 days for Prime Retail funds (​down 0.​2 days). Government fund WALs averaged 92.​1 days (​down 4.​2 days) while Treasury fund WALs averaged 95.​4 days (​down 4.​4 days). Muni Institutional fund WALs were 14.​3 days (​down 1.​2 days from the previous month), and Muni Retail MMF WALs averaged 26.​2 days (​down 0.​2 days).

The Weighted Average Maturity, or WAM, was 39.​9 days (​down 3.​5 days from the previous month) for Prime Institutional funds, 44.​4 days (​down 0.​3 days from the previous month) for Prime Retail funds, 43.​2 days (​down 2.​2 days) for Government funds, and 46.​5 days (​down 2.​3 days) for Treasury funds. Muni Inst WAMs were down 1.​5 days to 13.​5 days, while Muni Retail WAMs decreased 0.​5 days to 25.​1 days.

Total Daily Liquid Assets for Prime Institutional funds were 51.​6% in March (​up 0.​3% from the previous month), and DLA for Prime Retail funds was 33.​7% (​up 2.​2% from previous month) as a percent of total assets. The average DLA was 69.​2% for Govt MMFs and 95.​4% for Treasury MMFs. Total Weekly Liquid Assets was 62.​6% (​down 0.​7% from the previous month) for Prime Institutional MMFs, and 44.​0% (​down 2.​6% from the previous month) for Prime Retail funds. Average WLA was 83.​5% for Govt MMFs and 99.​2% for Treasury MMFs.

In the SEC'​s "Prime Holdings of Bank-​Related Securities by Country table for March 2021," the largest entries included: Canada with $​10.​9.​9 billion, France with $​77.​8 billion, Japan with $​69.​2 billion, the U.​S. with $​63.​8B, the Netherlands with $​40.​2B, Germany with $​36.​0B, the U.​K. with 31.​4B, Aust/​NZ with $​28.​9B and Switzerland with $​17.​3B. The biggest gainers among the "Prime MMF Holdings by Country" were: Aust/​NZ (​up $​2.​5 billion), the Netherlands (​up $​2.​2B) and Switzerland (​up $​0.​8B). The biggest decreases were: Germany (​down $​8.​7B), the U.​K. (​down $​8.​6B), Japan (​down $​7.​0B), France (​down $​6.​3B), the U.​S. (​down $​3.​5B) and Canada (​down $​2.​5B).

The SEC'​s "Prime Holdings of Bank-​Related Securities by Region" table shows Europe had $​98.​8B (​down $​17.​1B from last month), the Eurozone subset had $​166.​3B (​down $​15.​1B). The Americas had $​174.​0 billion (​down $​6.​1B), while Asia Pacific had $​113.​4B (​down $​0.​7B).

The "​Prime MMF Aggregate Product Exposures" chart shows that of the $​921.​3B billion in Prime MMF Portfolios as of March 31, $​346.​1B (​37.​6%) was in Government & Treasury securities (​direct and repo) (​up from $​310.​7B), $​216.​1B (​23.​5%) was in CDs and Time Deposits (​down from $​245.​7B), $​189.​0B (​20.​5%) was in Financial Company CP (​up from $​182.​3B), $​128.​3B (​13.​9%) was held in Non-​Financial CP and Other securities (​down from $​138.​8B), and $​41.​8B (​4.​5%) was in ABCP (​down from $​44.​1B).

The SEC'​s "Government and Treasury Funds Bank Repo Counterparties by Country" table shows the U.​S. with $​213.​0 billion, Canada with $​154.​6 billion, France with $​185.​0 billion, the U.​K. with $​78.​5 billion, Germany with $​18.​8 billion, Japan with $​144.​4 billion and Other with $​42.​1 billion. All MMF Repo with the Federal Reserve was up $​122.​6 billion in March at $​122.​6 billion.

Finally, a "Percent of Securities with Greater than 179 Days to Maturity" table shows Prime Inst MMFs 7.​9%, Prime Retail MMFs with 4.​6%, Muni Inst MMFs with 1.​1%, Muni Retail MMFs with 2.​8%, Govt MMFs with 15.​1% and Treasury MMFs with 13.​9%.

​

Moody'​s Investors Service published the brief, "Money market funds face more rule changes after coronavirus turmoil." It begins, "US and EU regulators plan to adjust money market fund (​MMF) rules after coronavirus-​related market turmoil caused an extreme flight to quality in March 2020, putting prime MMF liquidity under pressure, and triggering a drop in fund valuations. The MMF sector'​s dash for liquidity exacerbated short-​term market pressures, raising concerns about the systemic risks posed by the sector. Regulators have put all options on the table, including several proposals that would drastically change the structure of prime MMFs. The proposals follow transformative reforms of the sector implemented in 2016 in the US, and 2018 in the EU. Regulators are unlikely to implement new reforms before 2022. The Financial Stability Board (​FSB) is conducting a separate review of the MMF sector that will look broadly at the factors that affect liquidity in short term debt markets."

The piece summarizes, "Pre-​emptive redemptions exacerbated March 2020 turmoil," writing, "Research by US Federal Reserve Board economists shows that in March 2020, some investors in prime MMFs exited long before any breach of liquidity thresholds that might have triggered redemption restrictions. There is also evidence that MMFs sold less liquid assets to meet redemption requests so as to protect their weekly liquidity thresholds, aggravating market-​wide liquidity shortages."

Moody'​s continues, "In February, the Securities and Exchange Commission published ten reform proposals for public comment. One of these is to remove the link between breaches of liquidity thresholds and the imposition of withdrawal restrictions. This would help reduce the risk of pre-​emptive redemptions, and make it easier for prime and tax-​exempt MMFs to deploy their liquid assets in periods of market stress, a credit positive. However, we believe the SEC'​s other proposals would have a more far-​reaching impact on the sector, with some potentially making prime MMFs less attractive to investors, a credit negative for the prime industry."

They add, "EU regulators will consider similar changes to liquidity rules as their US peers, and will look again at the Low Volatility Net Asset Value (​LVNAV) fund model, after LVNAV funds' mark-​to-​market NAVs came close to exceeding the maximum '​collar' relative to their amortized NAVs in March 2020.... The FSB'​s review, due in July 2021, will consider the factors that amplified stress in short-​term credit markets last year. It will look at how the non-​bank sector'​s growing role in financial intermediation, banks' retreat from security dealing, and margin calls on leveraged investors, may limit liquidity. The European Commission will likely draw on the FSB'​s conclusions in its own review, due in July 2022."

S&​P Global Ratings says that, "The New Bloomberg Short-​Term Bank Yield Index Is Consistent With Our Fund Ratings Criteria." They write, "As the transition away from LIBOR continues, another potential successor has been introduced -- the Bloomberg Short-​Term Bank Yield Index (​BSBY). BSBY seeks to measure the average yields at which large global banks access U.​S. dollar senior unsecured marginal wholesale funding. S&​P Global Ratings has determined that BSBY is consistent with our principal stability fund ratings (​PSFR) methodology as an '​anchor' money market reference rate. As a result, we would not classify exposures to floating-​rate securities referencing BSBY as '​higher-​risk investments,' subject to our assessment of their credit quality, diversification, and maturity metrics."

S&​P states, "​We'​ve received information that demonstrated how BSBY would have moved in the past five years. Our review found that BSBY is highly correlated to LIBOR, which we view as an anchor money market reference rate for various tenors such as overnight and one, three, six, and 12 months. In addition, we previously reviewed the Secured Overnight Financing Rate (​SOFR) and the Euro Short-​Term Rate (​ESTR) as alternative anchor money market rates and determined that instruments pricing off these indices also will not constitute '​higher-​risk investments,' as described in our PSFR criteria."

Fitch Ratings also weighed in on the topic with, "MMFs Likely to Invest in Securities Referencing LIBOR and SOFR Alternatives." They write, "Fitch Ratings expects global money market funds (​MMFs) to gradually adopt newly-​developed reference rate alternatives to the London Interbank Offered Rate (​LIBOR). Alternative benchmarks, such as the Bloomberg Short-​Term Bank Yield Index (​BSBY) and the ICE Benchmark Administration'​s Bank Yield Index (​BYI) are being established due to demand from market participants for a forward-​looking, credit-​sensitive index as a replacement for LIBOR, which is being phased out."

Their commentary continues, "Fitch received a number of requests from market participants to opine on the treatment of securities referencing BSBY in our MMF criteria. Bloomberg'​s methodology for BSBY seeks to address the issues noted above while eliminating the subjectivity associated with LIBOR. Bloomberg updates BSBY daily, offering overnight, one-, three-, six- and 12-​month tenor options. BSBY is based on a blend of transaction data and executable quotes for commercial paper, certificates of deposits, bank deposits, and bank bonds, sourced from TRACE and Bloomberg Execution Solutions. Combined, these quotes accounted for $​165 billion-$​200 billion of average daily volume over the past three years, according to Bloomberg."

It adds, "Fitch believes that securities that reference BSBY meet the relevant definitions in Fitch'​s rating criteria for MMFs. The criteria states that floating-​rate securities held within MMFs are expected to reference an index whose movement is highly correlated with changes in prevailing short-​term interest rates. Based on BSBY'​s rate-​setting methodology and a review of Bloomberg'​s historical back-​testing data, Fitch believes that BSBY meets this criteria definition. Fitch will assess any additional new benchmarks in line with this definition."

Fitch also released its April "U.​S. Money Market Funds" dashboard, writing, "Total taxable money market fund (​MMF) assets increased by $​131 billion to $​4.​3 trillion from Feb. 26, 2021 to March 31, 2021, according to iMoneyNet data. Government MMFs gained $​144 billion in assets during this period, offset by a $​14 billion decrease in prime MMF assets."

It adds, "MMFs have increased exposure to Treasury securities by $​143 billion in the month of March, according to Crane Data. Government MMFs accounted for the entirety of the increase, $​152 billion, while prime MMFs decreased exposure by $​9 billion. 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.... As of March 31, 2021, institutional government and prime MMF yields are the same at 0.​03%, per iMoneyNet data."

J.​P. Morgan'​s "Short-​Term Fixed Income" comments on the BSBY, stating, "Away from rates, Bloomberg'​s Short-​Term Bank Yield Index (​BSBY) seems to be gaining traction as a credible alternative credit benchmark for the money markets. Of note, S&​P released guidance this week stating that BSBY is consistent with its principal stability fund ratings methodology as an '​anchor' money market reference rate. As a result, S&​P would not classify BSBY FRNs as '​higher-​risk investments,' subject to other metrics. This matters as nearly 25% of the prime MMF universe or about $​220bn are rated by S&​P.... Provided Moody'​s and Fitch come to a similar determination (​which we believe they have/​will), this effectively opens the door of the entire prime MMF universe (​roughly $​900bn) to BSBY FRNs. As a consequence, we wouldn'​t be surprised to see the emergence of BSBY FRNs in the very near-​term." (​See too the oddly-​contrarian Wall Street Journal article, "Libor-​Replacement Competitor Gains Strength From New Offerings," which writes on the underdog Ameribor index.)

​

Federated Hermes is yet another of the host of money fund managers who submitted comment letters in response to the SEC'​s "Request for Comment on Potential Money Market Fund Reform Measures in President'​s Working Group Report." Federated'​s letter, written by Christopher Donahue and Deborah Cunnningham, tells us, "We are writing on behalf of Federated Hermes, Inc. and its subsidiaries to provide comments in response to the Report of the President'​s Working Group on Financial Markets, Overview of Recent Events and Potential Reform Options for Money Market Funds which was issued in December 2020. We would like to state upfront that we acknowledge and endorse the comment letter submitted by The Investment Company Institute ... with very minor differences regarding potential changes to liquid asset requirements." (Reminder: Please join us tomorrow, April 22 from 2-​3pm EDT, for our "ESG & Social Money Fund Update" webinar.)

Federated continues, "​The PWG MMF Report suggests that the regulation of MMFs be reevaluated in light of financial market events that occurred in the Spring of 2020 during the early part of the COVID-​19 pandemic. These troubled times have taught us more about medical care, public health and virology than any of us would have liked. But the newly familiar maxims of '​first, do no harm' and '​follow the data' are important in considering further changes to MMF regulation. We support reevaluation and, if warranted by the data, further refinement of MMF regulation. More importantly, we support, where warranted by the data, improvement in market structures to make short-​term markets more resilient."

They explain, "In following the data, we draw very different conclusions than those stated in the PWG MMF Report. We urge policymakers not to further harm financial markets by adopting poorly-​conceived changes to MMF regulation. Rather, the U.​S. Securities and Exchange Commission should instead refine certain aspects of the 2014 amendments to Rule 2a-​7 under the Investment Company Act of 1940 having to do with the implementation of '​gates and fees'. The creation of an artificial requirement for MMFs to consider the imposition of '​gates and fees' linked to conformance with weekly liquid asset requirements created a very real incentive for some shareholders to redeem from prime institutional MMFs ahead of liquidity minimums being reached. The advent of a MMF dropping below the minimum weekly liquidity levels prompting investors' concerns over such a drop triggering gates and fees has become the new '​breaking the buck' event."

The comment says, "Federated Hermes has been in business since 1955 and has more than 45 years of experience managing MMFs. During that period, Federated Hermes has participated actively in the money market as it developed over the years. MMFs managed by Federated Hermes in the United States include U.​S. government MMFs, municipal MMFs and prime MMFs. As of year-​end 2020, slightly over two-​thirds of the MMF assets managed by Federated Hermes are U.​S. government securities and less than 30% consist of commercial paper and other non-​government instruments. Federated Hermes also manages MMFs and other investment funds and accounts in Canada, Europe and Asia. In addition to MMFs, Federated Hermes manages accounts for institutional customers that invest in money market instruments, as well as state government-​sponsored local government investment pools ('​LGIPs') that invest in money market instruments. In all, Federated Hermes manages more than $​400 billion in money market assets, the vast majority of which have ESG integrated into their investment process."

Federated writes, "MMFs play an important role in the capital markets by providing an efficient means for institutional and retail investors to put short-​term cash balances to work at a competitive market rate, providing relatively low-​cost short-​term financing to creditworthy governments and businesses. MMFs provide investors with a convenient means to access professional management of highly diversified portfolios of high quality short-​term instruments. MMFs are much more efficient (​and for very large balances, safer) than banks at intermediating between short-​term cash investors and short-​term government and corporate borrowers. The utility of MMFs to both retail and institutional investors recently received the most sincere and perhaps unintended endorsements from PWG constituent agencies and their proxies in the form of enforcement actions brought by the Office of the Comptroller of the Currency (​the '​OCC'), the SEC and FINRA against banks, broker-​dealers and investment advisers for breaches of fiduciary duties and disclosure obligations to customers by failing to invest customer cash balances at a competitive market yield in institutional MMF share classes and failing to disclose the clear benefits of investing in institutional classes of MMFs and instead investing those balances in bank deposits."

They add, "Unlike bank deposits, which pay an administered rate, MMFs provide investors with a market rate of return. This allows a fair and competitive return to investors, rather than potentially-​lower non-​market rates. This puts smaller investors on par with high-​net worth investors and institutions in terms of access to market-​based rates of return on their cash. The benefit to investors of more than $​200 billion from these higher returns from MMFs over bank deposits since 1990.... This comment letter responds to the policy considerations outlined in the PWG MMF Report and recommends regulatory changes and enhancements to improve the resilience of MMFs as well as market structure reform considerations to improve market performance in times of severe stress."

Donahue and Cunningham state, "Key points that Federated Hermes wishes to make in this comment letter are: MMFs did not cause or exacerbate the turmoil in the financial markets in the Spring of 2020. Playing a role in the markets and reacting to market stresses should not be confused with causing such market stresses; MMFs have no '​structural vulnerabilities' warranting some of the more significant policy options outlined in the PWG MMF Report, such as capital buffers or holdbacks. The SEC'​s MMF rule has some flaws related to the linkage of liquid asset compliance to gates and fees, and those should be corrected as discussed below; The market turmoil in the Spring of 2020 was created by a global pandemic the likes of which had not been seen for a hundred years and the response by governments around the world to stem the spread of the virus."

Other "key points" include: "The financial markets turmoil started in the equities markets weeks before it impacted the markets in U.​S. treasury securities and corporate bonds, and thereafter commercial paper. The financial markets turmoil affected the bond markets and repurchase agreements several days before it affected the commercial paper markets; ... MMFs are no longer a dominant player in commercial paper markets and were not in early 2020. Commercial paper is no longer a substantial portion of MMF assets. This is evidenced by the fact the Federal Reserve Bank of Boston included a plethora of high-​quality short-​term assets as eligible for inclusion in its Money Market Mutual Fund Liquidity Facility on March 18, 2020; Commercial paper issued by the industries most disrupted by the COVID-​19 pandemic (​travel, hospitality, entertainment and in-​person retail) are not a significant part of the investment portfolios of MMFs. MMFs did not and could not have caused or materially exacerbated turmoil in the commercial paper markets in the Spring of 2020."

They also list: "The very short duration of MMF portfolios as measured by weighted average maturity ('​WAM') and weighted average life ('​WAL'), particularly as compared to those of banks, evidences the fact that MMFs are not engaged in any significant '​maturity transformation' but instead provide cost-​effective professionally-​managed diversified portfolios of high-​quality, short-​term securities, which would not be achievable in a separately managed account for most investors; The Federal Reserve did not bail out MMFs. It extended fully collateralized credit for a short period of time and as part of a much broader emergency finance program to provide liquidity to credit markets. The Federal Reserve has earned over $​185 million in interest, fees and other revenues from its Money Market Mutual Fund Liquidity Facility, with zero incurred or expected losses to the Federal Reserve."

In addition, Federated makes the point: "MMFs are a useful and efficient capital markets and investment management tool for intermediating between investors of liquid assets and short-​term borrowers, and not a threat to the financial system, as documented by the latest round of enforcement actions brought by PWG members and their proxies against banks, broker-​dealers and investment advisers for alleged breach of fiduciary duties and disclosure obligations to customers for failing to invest client cash balances in low-​fee institutional MMFs and failure to disclose how much better those are than bank sweep deposits.... Market structure reforms should be the focus of any reasonable regulatory response, including finding ways to encourage banks and dealers to serve as market makers in times of extraordinary liquidity demand like that caused by the government'​s response to the pandemic."

Regarding the "2007-​2009 Financial Crisis," they explain, "The PWG MMF Report describes the events involving the Reserve Primary Fund breaking the buck in September 2008 in isolation, which in and of itself leads to the perpetuation of a false narrative. The Financial Crisis started in mid-​2007, not September 2008. The U.​S. and global economy and financial system were in free fall for many months before September 2008.... Unless one adopts a non-​linear view of time, MMFs certainly did not cause the Financial Crisis. The Financial Crisis caused Lehman to fail. Lehman'​s failure caused the Reserve Primary Fund to '​break a buck.' Not the other way around."

Finally, Federated Hermes adds, "Here is the reality: the COVID-​19 pandemic and government reaction to the same drove all of this. The market disruptions in March and April of 2020 were exacerbated by the chaotic and uncoordinated response of governments around the world, including the U.​S., to the global pandemic. The disruptions were not '​caused' by '​structural vulnerabilities' of money market funds. The complaint, for example, of maturity transformation when asserting the structural vulnerability of money market funds -- when compared to banks -- is like comparing an ice cube to an iceberg; they'​re both frozen water but are not really the same."

​

A press release entitled, "Northern Trust Asset Management Announces Renaming of Fund Share Class Utilized in Diversity Efforts," explains, "Northern Trust Asset Management (​NTAM) announced the re-​naming of a share class which provides institutional investors with a money market solution offered as part of NTAM'​s well-​established partnership with a leading minority- and women-​owned business. The change became effective April 1 and reflects the merger of Siebert Cisneros Shank & Co. and The Williams Capital Group; the combined company operates under the name Siebert Williams Shank & Co. (​SWS)." Northern'​s Williams class was one of the first "​ESG" or "​Social" money fund options partnered with a minority-​owned businesses available. (Note: Please join us for our free "ESG & Social Money Fund Update," which takes place Thursday, April 22 from 2-​3pm EDT.)

Northern continues, "The Siebert Williams Shank Shares class (​WCGXX) (​formerly The Williams Capital Shares class) of the Northern Institutional Funds (​NIF) U.​S. Government Select (​Money Market) Portfolio (​Fund) was first offered more than six years ago and represents a longstanding collaboration between Northern Trust Asset Management (​NTAM), a leading global asset manager with $​1.​1 trillion in assets under management, and Siebert Williams Shank & Co., LLC (​SWS), a leading minority- and women-​owned independent, non-​bank financial services firm in the United States."

Sheri Hawkins, global head of product at NTAM is quoted, "We greatly value our long-​time relationship with Siebert Williams Shank and are pleased to continue partnering with them.... We believe that partnering with diverse organizations can meet the shared goal of delivering better outcomes for investors and the communities we serve."

The release explains, "Since the inception of the Fund share class on September 15, 2014, it has grown to $​5.​0 billion, representing more than twelve percent (​12%) of the NIF U.​S. Government Select Portfolio'​s overall $​41.​4 billion net assets, as of March 31, 2021. Partnering with minority-​owned firms is just one way that NTAM has been putting its values into action over the years. For decades, NTAM has been driving change by developing innovative investment programs and investing in the communities it serves."

It adds, "In 2007, NTAM established its Minority Brokerage Program and has been engaging with diverse managers through its Multi-​Manager Program since 1979. NTAM recently raised its Minority Brokerage Program'​s execution target to 15 percent for equity security trading commissions in certain other NTAM commingled funds, while continuing to meet our best execution standards. SWS is a participant firm in the Minority Brokerage Program, which is another way that NTAM and SWS have collaborated." See an earlier Prospectus Supplement filing.

Crane Data currently tracks 22 Social, ESG, Minority or Veteran-​affiliated MMFs with $​53.​3 billion (​as of 3/​31/​21). Social or "​Impact" MMFs (​all Govt MMFs) total $​26.​9 billion and include: Federated Hermes Govt Ob Tax-​M IS (​GOTXX, $​7.​9B), Dreyfus Govt Sec Cash Instit (​DIPXX, $​4.​5B), Goldman Sachs FS Fed Instr Inst (​FIRXX, $​3.​0B) and Morgan Stanley Inst Liq Govt Sec Inst (​MUIXX, $​11.​5B). ESG MMFs (​All Prime) total $​8.​9B and include: BlackRock LEAF Direct (​LEDXX, $​1.​2B), BlackRock Wealth LEAF Inv (​PINXX, $​2.​3B), DWS ESG Liquidity Inst (​ESGXX, $​539M), Morgan Stanley Inst Liq ESG MMP I (​MPUXX, $​3.​1B), State Street ESG Liq Res Prem (​ELRXX, $​1.​1B) and UBS Select ESG Prime Inst Fund (​SGIXX, $​546M).

Social and Veteran-​Affiliated MMF Share Classes (​Prime and Govt) total $​17.​5B and include: Goldman Sachs FS Govt Drexel Hamilton (​VETXX, $​5.​1B), Goldman Sachs FS Prm Ob Drexel Hamilton (​VTNXX, $​66M), Invesco Govt & Agency Cavu (​CVGXX, $​79M), Invesco Liquid Assets Cavu (​CVPXX, $​1M), Invesco Treasury Cavu (​CVTXX, $​1M), JPMorgan 100% US Trs MM Academy (​JACXX, $​128), JPMorgan Prime MM Academy (​JPAXX, $​1.​2B), JPMorgan Prime MM Empower (​EJPXX, $​1M), JPMorgan US Govt MM Academy (​JGAXX, $​5.​0B), JPMorgan US Govt MM Empower (​EJGXX, $​1.​0B), JPMorgan US Trs Plus MM Academy (​JPCXX, $​18M) and Northern Instit Govt Select SWS (​WCGXX, $​5.​0B). (​Several other funds are pending, including: HSBC ESG Prime.)

For more on ESG and "​Social" MMFs, see these Crane Data News pieces: "Morgan Stanley Files for CastleOak Shares; Bond Fund Symposium Today" (​3/​25/​21); "JP Morgan Launches "​Empower" Share Class to Support Minority Banks" (​2/​24/​21); "Invesco Files for Cavu Secs Class" (​12/​18/​20); "ESG and Social MMF Update: Mischler News, Green Deposits, Reg Debate" (​12/​4/​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, another release, entitled, "Safened US, Inc. launches next generation deposit platform for US Corporates," explains, "Safened today announced the launch of its Global Liquidity Platform, seamlessly connecting high quality commercial banks with their corporate customers. The platform enables banks to cost effectively attract Basel III friendly deposits, expand their funding sources and diversify their deposit base. By customizing their deposit offerings, banks can meet their funding needs and their regulatory requirements by setting LCR friendly terms. The various deposit instruments offered by Safened'​s network empower banks to design and attract balance sheet optimized funding."

Safened tells us, "Corporate clients are able to choose from a very competitive and robust set of deposit options. Safened'​s partner banks are among the highest rated institutions in the U.​S. and around the world. Our novel use of "​evergreen" and "​notice" terms takes the hassle out of rollovers and reinvestments." Graeme Henderson, Safened'​s Head of Sales, comments, "Our innovative deposit product suite and optimization tools are ideal, whether you'​re a corporate treasurer managing a short-​term portfolio, or a banker sourcing deposits. We put the entire market at your command."

Finally, a third press release, "FICC Sponsored Cleared Repo Now Available via BNY Mellon'​s LiquidityDirect, " announces that, "Institutional clients are now able to seamlessly invest cash in cleared repo through LiquidityDirect, BNY Mellon'​s market-​leading short-​end investment portal." It says, "The addition of cleared repo represents the next step in BNY Mellon'​s continuing plans to enhance the LiquidityDirect platform and its services to enable clients to invest in a wide variety of short-​end investment products."

BNY explains, "Cleared repo through the Fixed Income Clearing Corporation (​FICC) has emerged as an important short-​term investment option for liquidity providers, particularly since 2017 when changes in entry requirements increased the community of investors eligible to utilize the product, many of whom use LiquidityDirect today. Sponsored membership enables sponsoring firms like BNY Mellon to provide cleared repo to end users that would otherwise be ineligible to access the FICC clearing house, enabling clients to invest and raise cash in cleared repo without the financial obligations of full clearing house membership."

They continue, "Since BNY Mellon launched its sponsored member program at FICC in June 2017, the sponsored cleared repo sector has enjoyed strong growth, climbing from approximately $​30 billion in daily volume in early 2017 to peak at over $​525 billion in March 2019. Daily volumes have remained consistently above $​200 billion in recent months. The addition of cleared repo to LiquidityDirect broadens the range of short-​term investments on the platform to include a secured, centrally cleared alternative that provides counterparty diversity and potentially enhances yields."

George Maganas comments, "LiquidityDirect is one of the world'​s largest digital portals for investing in money market funds. With the addition of cleared repo -- and with other vehicles still to come -- we are demonstrating our ambition to build the venue into the market'​s leading short-​end investment platform.... Today, clients are looking for a single point of contact that both grants access to a wide variety of investment instruments as well as collateral management, treasury services and asset servicing capabilities. LiquidityDirect is that access point, and we are committed to connecting the dots for clients." (​See too the April issue of our Money Fund Intelligence, which features a profile of Maganas and LiquidityDirect.)

​

Last Monday was the deadline for the SEC'​s "Request for Comment on Potential Money Market Fund Reform Measures in President'​s Working Group Report" and, as expected, it brought an onslaught of comment letters. We reviewed several last week, but today we review submissions from retail giants Charles Schwab and Vanguard. Schwab'​s Rick Wurster writes, "Charles Schwab & Co, Inc. and Charles Schwab Investment Management appreciate the opportunity to provide comments to the Securities and Exchange Commission on the potential money market fund reform measures outlined by the President'​s Working Group on Financial Markets in its December 2020 report, 'Overview of Recent Events and Potential Reform Options for Money Market Funds'. Schwab is one of the largest managers of money market fund assets in the United States, with 21 money market funds and $​164 billion in assets ... as of March 31, 2021. Approximately $​90 billion of those assets are in prime funds (​including a retail fund with two share classes and an institutional fund with a floating net asset value); $​16 billion are in eight tax-​exempt municipal money market funds; and $​58 billion are in 10 government money market funds. Money market funds provide investors with stability, convenience, liquidity and yield. Schwab'​s money market fund offerings predominantly appeal to, and are used by, individual retail investors and investment advisers who service individual investors to help manage their cash." (Reminder: Register for our free "ESG & Social Money Fund Update," which takes place Thursday, April 22 from 2-​3pm EDT.)

The "Overview" tells us, "Schwab has been an active participant in the debate over money market fund regulation for well over a decade. We were supportive of the Commission'​s 2010 reforms to Rule 2a-​7, which strengthened money market funds by increasing transparency and reducing the risk of runs. In 2012, an op-​ed piece in The Wall Street Journal by Schwab CEO Walter Bettinger proposed that prime money market funds for institutional investors be required to have a floating net asset value. A version of this proposal was ultimately adopted by the Commission in 2014. At the time, Schwab advocated for separate rules for institutional prime money market funds and retail prime money market funds, arguing that '​imposing a floating net asset value solution across all money market funds would be a fundamental change to a product upon which individual investors have come to rely for four decades.'"

It explains, "Schwab believes that the 2010 and 2014 reforms to Rule 2a-​7 enhanced the stability of money funds and the funds' ability to continue to function in illiquid markets. However, with the benefit of our experiences in this most recent crisis, we believe additional reforms could further strengthen the resiliency of money funds, particularly in more volatile markets. To that end, Schwab now believes that serious consideration should be given by the Commission to requiring all prime and municipal money market funds to have a floating NAV. While we by no means believe that the current money fund model is unsustainable or requires immediate reform, we nonetheless recognize that there are always ways to enhance products to increase their transparency and viability. In that spirit, we now believe that a floating NAV may reinforce to investors the fluctuating value of their investments and diminish any belief that the $​1 constant net asset value is the equivalent of a guarantee of their investment. We also argue that government money market funds, which have far fewer vulnerabilities, should continue to be permitted to operate as constant NAV products with a stable price of $​1 per share."

Schwab comments, "​It has been our general experience that many retail investors understand how money market funds work today; specifically, they understand that there is no implicit or explicit guarantee attached to their investment in a money market fund. Nevertheless, we acknowledge that not all retail investors have that same depth of understanding and that policymakers, regulators and the media alike continue to suggest that there is a risk of investor confusion about these products. Therefore, as we outline below, Schwab believes that the time has come to consider whether the stable $​1 per share price of prime and municipal money market funds is based on an accounting convention whose time has passed."

They state, "​We recognize that requiring prime and municipal money market funds to operate with a floating NAV does not specifically address the liquidity concerns that triggered market volatility in March 2020 -- a key goal of the PWG. Therefore, we believe additional reforms are critical. To that end, we also recommend adopting the PWG'​s recommendation to remove the link between a money fund'​s weekly and daily liquidity levels and the imposition of fees and gates. Schwab also supports structural reforms that will increase transparency and liquidity in the short-​term markets. These reforms will benefit retail investors and improve the resiliency of these important short-​term cash management solutions."

Schwab'​s letter says, "The Commission will also need to resolve whether floating NAV funds should continue to be permitted to call themselves '​money market funds,' as well as whether floating NAV money market funds should continue to be governed by Rule 2a-​7.... We also considered the possibility that a category of prime and/​or municipal money market funds could retain a constant NAV, provided that those funds have a capital buffer."

It adds, "Finally, Schwab believes strongly that the events of March 2020 were not specific to money market funds and, therefore, is also supportive of any structural reforms that bring greater liquidity and transparency to the short-​term markets. Improving the liquidity of short-​term securities is the best way to address frozen markets across all investment types, not just money market funds. The emergence of a global pandemic caused an unprecedented liquidity crisis across a wide variety of markets in March 2020. We believe that our recommendations -- indeed, any of the PWG'​s reform recommendations -- will not be effective unless paired with structural reforms to these markets. Improving underlying market liquidity, particularly in the repo and commercial paper markets, would minimize price dislocation and reduce volatility. We support the perspective of other commenters, including the Investment Company Institute, on this issue."

Wurster tells Crane Data, "Importantly, we think money market funds are not in need of immediate reform. We view this more as an opportunity to come together, to strengthen our industry and [​to] strengthen the resiliency of money market funds and to increase transparency for investors. We have three recommendations. One ... which is to consider a floating NAV for all prime and muni money funds. The second was to remove the tie between money market fund liquidity levels and the impositions of fees and gates. We think that would improve liquidity in the short-​term money markets.... And then the third was that we support any reform that brings greater liquidity and transparency to the underlying markets. Those were the three things we commented on."

The comment from Vanguard'​s Gregory Davis states, "​Vanguard has managed money market mutual funds since 1981. On behalf of our shareholders, who currently invest approximately $​375 billion in our MMFs, we are deeply committed to working with the Commission and other financial regulatory authorities to strengthen the money market industry for the benefit and further protection of investors. Vanguard believes MMFs are an important choice for retail investors' cash management and principal preservation needs. For more than a decade, we have been actively involved in researching and evaluating MMF reform proposals including SEC amendments to Rule 2a-​7 that were implemented in 2010 and 2014. Those changes enhanced MMFs' credit quality, liquidity self-​provisioning, and disclosure, thereby reducing the likelihood that a future systemic market disruption would threaten these funds."

He explains, "​In March 2020, the economic shock of the COVID-​19 pandemic led to an unprecedented flight to liquidity and safety by investors and other market participants.... As a result of this volatility, Vanguard looked closely at its MMF offerings and in August 2020 announced that Vanguard Prime Money Market Fund would be reorganized into a government MMF. We recognized that retail investors prioritize stability when selecting money market investments and the change in investment strategy would enable the fund to continue to meet investors' expectations while providing a competitive yield over the long term. Our decision to exit prime also took into account changing market dynamics that warrant review by financial market regulators so that the short-​term markets are more resilient in the case of another similar event."

The 3rd largest money fund manager writes, "Vanguard supports a floating NAV for all prime MMFs, including retail prime. Prime MMFs have concentrated exposure to commercial paper and other short-​term debt issued by banks and other financial firms that are essential for the availability of credit and liquidity in the financial markets. We support further consideration of whether retail tax-​exempt MMFs should preserve a stable $​1.​00 NAV or adopt a floating NAV structure. The short-​term municipal securities markets are a unique category of securities that may warrant different regulatory treatment when compared to prime MMFs. We also support elimination of fees and gates for all types of MMFs, as these tools triggered -- rather than reduced -- fund outflows in March 2020. As the Commission turns its attention to potential additional MMF reforms, we encourage reform solutions that are tailored to the funds most likely to experience destabilizing redemptions."

Vanguard summarizes, "We support a floating NAV for all prime MMFs. As we have seen, the structure of the CP market puts stress on both CP issuers and prime MMFs whether institutional or retail. Given market structure constraints and the potential volatility in underlying prime assets, a floating NAV can help ensure that fund values fluctuate with these markets providing more flexibility and resilience than a stable NAV fund. A floating NAV also helps set investor expectations that NAVs may fluctuate during periods of market stress. We support further consideration of whether retail tax-​exempt MMFs, with additional protections, can continue to sell and redeem shares at a stable $​1.​00 NAV.... [​O]​n balance we think these funds could continue to support a stable NAV if additional liquidity protections are put in place. To that end, we recommend that the Commission consider requiring shorter weekly average maturities ('​WAMs') in tax-​exempt MMFs as an additional measure."

It adds, "​We support elimination of fees and gates for all types of MMFs.... A simple floating NAV product structure, more consistent with traditional mutual funds, would avoid that dynamic. In addition, we support enhanced liquid asset requirements in both prime and tax-​exempt MMFs. Policymakers should consider what additional steps should be taken to ensure sufficient liquidity exists in the short-​term markets during times of stress. Though the product reforms outlined above would eliminate any knock-​on run risk exacerbated by the MMF structure, we firmly believe that MMF reform alone does not -- and cannot -- eliminate liquidity risk in the underlying short-​term wholesale funding markets. `​Policymakers should look closely at these markets, their tools and the various events surrounding March 2020 volatility, to improve resiliency in this critical segment of our markets."

Lastly, Vanguard tells us, "In summary, we support a simple approach to MMF reforms -- a floating NAV for retail prime MMFs, a stable NAV and shorter WAMs for tax-​exempt MMFs, and eliminating fees and gates for all types of MMFs. We believe this approach is far superior to the other reform options in the PWG Report. While the other reform options may have some benefits, the Commission should carefully consider unintended negative consequences for investors and significant regulatory, disclosure, and operational challenges associated with them."

​

SEC staffers published a paper entitled, "Prime MMFs at the Onset of the Pandemic: Asset Flows, Liquidity Buffers, and NAVs," which tells us, "Using weekly data filed by prime money market funds (​MMFs) on a monthly Form N-​MFP, this article offers a granular view of the funds' cash flows, liquidity buffers, and net asset values (​NAVs) per share during the heightened market volatility at the onset of the pandemic in March 2020." Authors Viktoria Baklanova, Isaac Kuznits and Trevor Tatum explain, "​Prime MMFs can invest in a broad range of short-​term, high quality fixed-​income instruments such as U.​S. Treasury bills, federal agency notes, certificates of deposit, corporate commercial paper, repurchase agreements, and obligations of states, cities, or other types of municipal agencies. At the onset of the pandemic, in mid-​March 2020, amidst heightened volatility throughout financial markets, investors redeemed $​134 billion from prime and tax-​exempt MMFs, while government MMFs received inflows of $​838 billion.... Although the MMF industry as a whole grew during this period, the large outflows from prime MMFs highlighted the remaining structural vulnerabilities in these funds."

They write, "In February 2020, before the events in mid-​March, there were 82 prime MMFs (​excluding feeder funds), comprising 50 prime institutional MMFs and 32 prime retail MMFs, managed by 35 fund families. A number of fund families revised their MMF offerings in 2020, resulting in a 13% decrease in the number of prime MMFs available. By February 2021, there were 71 prime MMFs, including 44 institutional funds and 27 retail funds."

The SEC piece comments, "​Prime institutional MMFs can be further divided into publicly offered funds and funds that are not offered to the public. A few U.​S. asset managers established non-​public prime institutional MMFs that are used mainly for internal cash management needs. These funds are sometimes referred to as '​internal' or '​central' MMFs. In February 2020, there were seven '​internal' prime institutional MMFs. This number did not change through February 2021.... In March 2020, investors withdrew roughly $​125 billion from prime MMFs, both institutional and retail, or around 11% of their net assets.... In the last three weeks of March these funds lost around $​95 billion, or roughly 14% of their total net assets, including around $​88 billion in outflows in the third week of the month."

It adds, "The largest outflows in mid-​March were from the publicly offered prime institutional MMFs with advisers owned by banking firms.... For example, the funds with advisers owned by the largest U.​S. banks designated as global systemically important banks ('​G-​SIBs') accounted for 56% of the outflows in the third week of March even though these funds managed only around 28% of net assets in publicly offered prime institutional MMFs."

Finally, the SEC states, "The MMF filings data did not show any apparent relationship between the level of the funds' NAV per share and outflows in the third week of March 2020. For example, the prime institutional MMF with the lowest NAV per share had only modest outflows of around $​6 million, which was less than 1% of the fund'​s net assets. On the other hand, the prime institutional MMF with the largest outflow as a percentage of its net assets (​54%) during that week had a $​1.​0001 NAV per share."

In other news, Crane Data'​s latest MFI International shows that assets in European or "​offshore" money market mutual funds inched higher over the last month to $​998.​7 billion, following a decline in February. These U.​S.-​style funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, increased by $​10.​1 billion over the last 30 days (​through 4/​14); they'​re down $​60.​7 billion (-​5.​7%) year-​to-​date. Offshore US Dollar money funds, which broke over $​500 billion in January 2020, are up $​12.​9 billion over the last 30 days and are down $​8.​1 billion YTD to $​527.​6 billion. Euro funds are down E47 million over the past month, and YTD they'​re down E22.​9 billion to E134.​5 billion. GBP money funds have fallen by L2.​1 billion over 30 days, and are down by L19.​4 billion YTD to L237.​2B. 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 Monday), below.

Offshore USD MMFs yield 0.​03% (​7-​Day) on average (​as of 04/​14/​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 March MFII Portfolio Holdings, with data as of 03/​31/​21, show that European-​domiciled US Dollar MMFs, on average, consist of 27.​0% in Commercial Paper (​CP), 16.​1% in Certificates of Deposit (​CDs), 12.​5% in Repo, 33.​0% in Treasury securities, 10.​3% in Other securities (​primarily Time Deposits) and 1.​0% in Government Agency securities. USD funds have on average 29.​6% of their portfolios maturing Overnight, 7.​1% maturing in 2-​7 Days, 17.​0% maturing in 8-​30 Days, 14.​3% maturing in 31-​60 Days, 10.​5% maturing in 61-​90 Days, 15.​7% maturing in 91-​180 Days and 5.​9% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (​41.​3%), France (​12.​4%), Canada (​8.​0%), Sweden (​6.​4%), Japan (​6.​3%), Germany (​4.​9%), the Netherlands (​3.​9%), the U.​K. (​3.​4%), Belgium (​2.​2%) and Australia (​2.​2%).

The 10 Largest Issuers to "​offshore" USD money funds include: the US Treasury with $​187.​3 billion (​33.​0% of total assets), BNP Paribas with $​17.​1B (​3.​0%), Fixed Income Clearing Corp with $​14.​8B (​2.​6%), Societe Generale with $​13.​3B (​2.​3%), Skandinaviska Enskilda Banken AB with $​13.​2B (​2.​3%), Svenska Handelsbanken with $​11.​2B (​2.​0%), Toronto-​Dominion Bank with $​10.​9B (​1.​9%), RBC with $​10.​1B (​1.​8%), JP Morgan with $​9.​8B (​1.​7%) and Agence Central de Organismes de Securite Sociale with $​9.​7B (​1.​7%).

Euro MMFs tracked by Crane Data contain, on average 38.​5% in CP, 20.​8% in CDs, 24.​6% in Other (​primarily Time Deposits), 10.​3% in Repo, 4.​8% in Treasuries and 1.​0% in Agency securities. EUR funds have on average 30.​6% of their portfolios maturing Overnight, 6.​8% maturing in 2-​7 Days, 16.​6% maturing in 8-​30 Days, 13.​6% maturing in 31-​60 Days, 12.​0% maturing in 61-​90 Days, 16.​6% maturing in 91-​180 Days and 3.​7% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (​33.​4%), Japan (​12.​7%), the U.​S. (​10.​0%), Sweden (​6.​8%), Switzerland (​5.​7%), Germany (​5.​5%), the U.​K. (​3.​4%), Austria (​3.​3%), Belgium (​3.​3%) and Canada (​3.​2%).

The 10 Largest Issuers to "​offshore" EUR money funds include: BNP Paribas with E6.​8B (​5.​7%), Credit Agricole with E6.​3B (​5.​3%), Societe Generale with E6.​2B (​5.​2%), Republic of France with E5.​2B (​4.​4%), Zü​rcher Kantonalbank with E4.​2B (​3.​5%), Sumitomo Mitsui Banking Corp with E4.​0B (​3.​4%), Mizuho Corporate Bank Ltd with E4.​0B (​3.​4%), BPCE SA with E4.​0B (​3.​3%), Svenska Handelsbanken with E3.​9B (​3.​3%) and Mitsubishi UFJ Financial Group Inc with E3.​5B (​3.​0%).

The GBP funds tracked by MFI International contain, on average (​as of 03/​31/​21): 37.​4% in CDs, 21.​3% in CP, 20.​0% in Other (​Time Deposits), 19.​0% in Repo, 2.​0% in Treasury and 0.​4% in Agency. Sterling funds have on average 30.​3% of their portfolios maturing Overnight, 11.​8% maturing in 2-​7 Days, 12.​7% maturing in 8-​30 Days, 10.​1% maturing in 31-​60 Days, 11.​6% maturing in 61-​90 Days, 17.​1% maturing in 91-​180 Days and 6.​4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (​20.​2%), the U.​K. (​16.​8%), Japan (​15.​2%), Canada (​10.​3%), the U.​S. (​6.​0%), the Netherlands (​4.​7%), Switzerland (​4.​0%), Sweden (​4.​0%), Australia (​3.​3%), and Spain (​3.​1%).

The 10 Largest Issuers to "​offshore" GBP money funds include: the UK Treasury with L15.​4B (​7.​5%), Mitsubishi UFJ Financial Group Inc with L10.​2B (​5.​0%), BNP Paribas with L9.​6B (​4.​7%), RBC with L8.​5B (​4.​1%), Sumitomo Mitsui Banking Corp with L7.​8B (​3.​8%), Agence Central de Organismes de Securite Sociale with L7.​6B (​3.​7%), Mizuho Corporate Bank Ltd with L7.​2B (​3.​5%), BPCE SA with L7.​0B (​3.​4%), Standard Chartered Bank with L6.​9B (​3.​4%) and Barclays PLC with L6.​6B (​3.​2%).

​

The April issue of our Bond Fund Intelligence, which was sent to subscribers Thursday morning, features the lead story, "Worldwide Bond Funds Break $​13 Trillion on Jump in US, Lux," which tracks worldwide bond fund flows in the fourth quarter; and "Bond Fund Symposium: State of Funds Strong, But in Flux," which highlights segments from our recent Bond Fund Symposium. 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. (Note: Please join us next week for an "ESG & Social Money Fund Update," which will take place April 22 from 2-​3pm Eastern. Register here for this free event.)

BFI'​s "Worldwide" piece reads, "Bond fund assets worldwide jumped in the latest quarter to $​13.​1 trillion, led by the four largest bond fund markets -- the U.​S., Luxembourg, Ireland and Germany. We review the ICI'​s 'Worldwide Open-​End Fund Assets and Flows, Fourth Quarter 2020' release and statistics.... 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."

ICI 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. On a US dollar–​denominated basis ... 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, while money market fund assets increased by 3.​1 percent globally to $​8.​31 trillion."

Our BF Symposium recap explains, "​Our recent Crane'​s Bond Fund Symposium, two afternoons of presentations and discussions which focused on the ultra-​short bond fund space, featured a presentation on 'The State of Bond Fund Industry.' Our Peter Crane and ICI'​s Shelly Antoniewicz discussed asset flows and included a host of statistics and charts on bond funds. We quote from some of the highlights below. (Attendees and Subscribers may access the recordings and materials at the bottom of our 'Content' page or via our Bond Fund Symposium 2021 Download Center.)"

It continues, "​Crane explains, 'Bond fund assets are now $​5.​3 trillion, breaking over $​5 trillion at the end of last year. Bond ETFs are over $​1 trillion now; they broke over $​1 trillion last year.... Shelly just ran a new revenue number, $​21 billion.... You can see the relentless inflows. You had that brief outflow spike last March, but other than that, it'​s amazing. It'​s like the stock market, every time you get a little bit of a correction it seems like it just comes back with a vengeance."

Antoniewicz tells us, "But even despite [​last March'​s] outflows, what we saw for 2020 overall was about $​445 billion going into bond funds. That'​s net new money that doesn'​t include asset price increases, [​and] we had pretty good total returns in the bond market last year. That $​445 billion was split pretty evenly between ETFs and mutual funds. Mutual funds had $​245 billion come in, and ETFs had around $​200 billion. Definitely, the flows were shifted more towards short and intermediate-​term. Long-​term had small outflows, and that'​s not surprising [​given] the interest rate environment."

A News brief, "Returns Down; Yields Jump in March," tells readers, "Bond fund yields jumped and returns fell again last month. Our BFI Total Index was -​0.​28% over 1-​month but increased 7.​56% over 12 months. The BFI 100 fell 0.​49% in March but rose 7.​04% over 1 year. Our BFI Conservative Ultra-​Short Index returned -​0.​04% over 1-​mo and 2.​48% over 1-​yr; Ultra-​Shorts averaged -​0.​03% in March and 4.​18% over 12 mos. Short-​Term returned -​0.​10% and 6.​54%, and Intm-​Term fell 0.​77% last month but rose 5.​61% over 1-​year. BFI'​s Long-​Term Index returned -​1.​40% in March and 5.​87% over 1-​year. Our High Yield Index gained 0.​15% in March and 20.​04% over 1-​yr."

Another News brief quotes ICI'​s Viewpoint, "Growth in Bond Mutual Funds: A Question of Balance." It asks, "Why have bond mutual funds grown substantially in the past several years? There are two possible explanations, with very different implications: One view: large inflows to bond funds have been driven by yield-​seeking or return-​chasing behavior. This explanation is promoted by commentators who worry that bond mutual funds could pose financial stability concerns -- who fear that yield-​chasing investors are likely to redeem en masse if yields on corporate bonds rise sharply and returns plummet, as might be anticipated during a financial crisis. The alternative view: the growth in bond fund assets has been driven more by fundamental secular trends. If this view is correct, concerns about redemptions should be tempered." (​See also ICI'​s Viewpoint, "Growth in Bond Mutual Funds: See the Whole Picture.")

In a third News update, Barron'​s writes, "Unconstrained Bond Funds Struggled in Good Times. But Might Be the Answer as Yields Rise." They comment, "Bond investors, who have spent the past decade bemoaning the difficulty of finding yield, are now contending with losses caused by rising yields.... The solution may come from an unloved sector -- unconstrained bond funds."

Finally, another News piece, entitled, "Morningstar Covers 'The First Quarter in Bond Funds,' tells us, '​Rising interest rates unsettle bond markets.... The jump in rates spelled trouble for most fixed-​income sectors. For the most part, all but the highest-​yielding and least rate-​sensitive bond sectors sold off as investors stretched for yield and cut exposure to rising rates. The Bloomberg Barclays U.​S. Aggregate Bond Index ... fell 3.​4% for the quarter. Ultimately, most fixed-​income Morningstar Categories lost ground in the first quarter of 2021. Long government funds trailed the pack with an average fall of 12.​8%, while floating-​rate bank-​loan funds led the way with an average gain of 1.​5%."

Contact us if you'​d like to see our latest Bond Fund Intelligence and BFI XLS spreadsheet, or our Bond Fund Portfolio Holdings data. (​The BFI Holdings ship next week on April 22.) Also, mark your calendars for next year'​s Bond Fund Symposium, which is scheduled for March 28-​29, 2022, in Newport Beach, Calif.

​

The Investment Company Institute is the latest to submit a letter in response to the SEC'​s "Request for Comment on Potential Money Market Fund Reform Measures in President'​s Working Group Report." Their press release, entitled, "ICI Responds to the President'​s Working Group Report on Potential Options for Money Market Fund Reforms," is subtitled, "Policymakers should conduct holistic review of short-​term funding markets before considering reforms to further bolster money market funds' resilience." It says, "​ICI President and CEO Eric J. Pan issued the following statement regarding ICI'​s letter to the Securities and Exchange Commission'​s request for comments on potential options for money market fund reforms as detailed in the President'​s Working Group (​PWG) report." (​The deadline for comment letters was Monday, April 12, so a host of letters are now listed. See all the comments here.)

Pan comments, "Policymakers seeking to address the COVID-​19 market turmoil should be prudent in placing new rules on money market funds. ICI'​s new data and analysis challenge the narrative that money market funds caused or amplified the stress in the short-​term funding markets in March 2020. As such, it is important to examine how last year'​s events, market structure, and the actions of all market participants, not just money market funds, led to significant strains in the short-​term funding markets last March. This is a necessary step before considering any of the PWG money market fund reform options."

He elaborates, "Regarding those options, removing the tie between the 30 percent weekly liquid asset threshold and the imposition of fees and gates would further strengthen prime money market funds and improve the financial system'​s resiliency. As ICI'​s letter shows, the threat of fees and gates was a main contributor to the unusually high redemptions from some prime institutional money market funds. In contrast, the other PWG options will not achieve policymakers' goal of making the financial system more resilient in the face of a severe liquidity shock. Instead, those options will only severely weaken money market funds' key characteristics and eliminate the important benefits they provide to millions of investors and the economy -- without addressing the underlying vulnerabilities in the financial system."

Pan adds, "More than 50 million retail investors, as well as corporations, municipalities, and other institutional investors, rely on $​4.​9 trillion in money market funds as low-​cost, efficient, and transparent cash management vehicles. Moreover, money market funds provide critical financing for governments, businesses, financial institutions, and households across the United States. ICI and its members are committed to working with US and international policymakers to further strengthen money market funds and the short-​term funding markets for the benefit of investors and the economy."

ICI'​s letter to the SEC, "Re: Report of the President'​s Working Group on Financial Markets: Overview of Recent Events and Potential Reform Options for Money Market Funds (​December 2020), begins, "The Investment Company Institute (​ICI) appreciates the opportunity to provide its views on the President'​s Working Group (​PWG) Report on Money Market Funds (​PWG Report or Report). Today, over 50 million retail investors, as well as corporations, municipalities, and other institutional investors, rely on the $​4.​9 trillion money market fund industry as a low cost, efficient, transparent, cash management vehicle that offers market-​based rates of return. Money market funds also are an important source of direct financing for governments (​federal, state and local), businesses, and financial institutions, and of indirect financing for households. Without money market funds, governments, institutions, and individuals would need to seek more expensive, less transparent, and less efficient forms of financing."

It continues, "ICI and its members are committed to working with US and international policymakers to strengthen the money market fund industry for the benefit and further protection of investors and the performance of broader financial markets and the economy more generally. We hope our comments below will be helpful to the SEC, the PWG, international financial regulators, and others as they consider how best to advance toward this important policy goal."

The Executive Summary explains, "Money market funds did not cause the stresses in the short-​term funding markets last March. US public institutional and retail prime money market funds accounted for just 19 percent of the reduction in financial and nonfinancial commercial paper outstanding during the week-​ended March 18, immediately before the Federal Reserve announced its Money Market Mutual Fund Liquidity Facility (​MMLF) and accompanying regulatory capital relief for dealers. Other market participants accounted for 81 percent of the decline. Therefore, money market funds should not be viewed as the main contributor to the freezing of the commercial paper market. In addition, even at the height of the liquidity crisis, money market funds, including institutional prime money market funds, still had liquidity to meet new redemptions if they had meaningful opportunity to use part of their 30 percent weekly liquid asset buffers."

It comments, "To the extent policymakers seek to mitigate the possibility of future distress in the short-​term funding markets, they should prioritize the examination of the activities and behavior of all market participants. Only by doing so will policymakers make progress toward their goal of making the financial system more resilient in the face of a liquidity shock of the nature experienced in March 2020."

The comment adds, "Supported by ICI'​s analysis of data, the evidence demonstrates the actual role money market funds played in the liquidity events of March 2020. It is in this context that ICI is providing comments on the ten options set forth in the Report for further reform of money market funds. ICI and its members have previously analyzed and offered feedback on many of these options. Our examination of the reform options as well as other reform ideas, which we understand have been suggested in the Financial Stability Board (​FSB) and International Organization of Securities Commissions (​IOSCO), has led us to the same conclusion the PWG apparently reached: there is no '​silver bullet' for safeguarding money market funds against the severest market distress scenarios that are beyond the control of money market funds. The reform options should be evaluated by comparing the impact they will have on the ability of money market funds to carry out their important role in the financial system (​i.​e., preservation of their key characteristics) against the likely practical impact any money market reforms will have on making the overall financial system more resilient. This should be the focus and overall goal of policymakers. Any new reforms for money market funds must be measured and appropriately calibrated taking into account the costs and benefits these funds provide to investors, the economy, and the short-​term funding markets."

ICI tells us, "We have divided the ten reform options into three categories: Reforms that could advance the goals of reform -- options with the most potential for addressing policymakers' concerns while preserving key characteristics of money market funds; Reforms that do not advance the goals of reform and do not preserve the key characteristics of money market funds -- options with significant drawbacks, ranging from potential detrimental impacts on money market funds, their investors, and the market to regulatory, structural, and operational barriers to implement; and Reforms that are unlikely to address policymakers' goals of reform."

Under "Reforms that could advance the goals of reform," ICI lists: "Removal of tie between money market fund liquidity and fee and gate thresholds; ... Modifications to redemption fee considerations [​and] Money market fund liquidity management changes. We believe an increase in the weekly liquid asset requirement -- consistent with what most funds already maintain as a matter of conservative liquidity management -- could make money market funds more resilient."

Regarding "Reforms that do not advance the goals of reform and do not preserve the key characteristics of money market funds," ICI includes: "Swing pricing [​and] Capital buffers. We oppose a reform that would require money market funds or their advisers to maintain capital against money market fund assets. The likeliest impact of a capital buffer requirement would be to impel money market fund sponsors to exit the business, depriving investors, issuers, and the economy of the benefits these funds provide.... `​Sponsor support requirements; Minimum balance at risk (​MBR); [​and] Liquidity exchange bank membership."

On "Reforms that are unlikely to advance the goals of reform," they write: "Floating NAVs for all prime and tax-​exempt money market funds ... does not reduce risk in any meaningful way.... Countercyclical weekly liquid asset requirements.... [​And], reform of conditions for imposing redemption gates.... [​G]​ates should be limited to extraordinary circumstances that present a significant risk of a run on a fund and potential harm to shareholders, such as those contemplated under Rule 22e-​3 under the Investment Company Act."

Finally, they tell the SEC, "Therefore, policymakers should focus on the core objective: to strengthen money market funds even further against adverse market conditions for the benefit of short-​term funding markets and enable them to meet extraordinarily high levels of redemption requests without the need for central bank liquidity support except in the most extreme circumstances. Indeed, as we consider the future of our markets in the wake of this pandemic, and the role of money market funds within the markets, we question those who say that money market funds must be regulated so aggressively that central bank intervention would never be needed again to provide liquidity support in the face of great economic shock. Such views claim that eliminating any future possibility of central bank support would avoid moral hazard. Of course, money market funds should be responsible for robust liquidity risk management and subject to appropriate rules and regulations. But holding money market funds at fault for central bank intervention intended to calm financial markets during a time of extreme uncertainty around a global catastrophe should not be the starting point for any discussion of reforms."

​

Crane Data'​s April Money Fund Portfolio Holdings, with data as of March 31, 2021, shows huge jumps in Treasuries and Repo, and drops in Agencies and Other/​Time Deposits. Money market securities held by Taxable U.​S. money funds (​tracked by Crane Data) leapt by $​187.​5 billion to $​4.​888 trillion in March, after increasing $​34.​3 billion in February and $​42.​9 billion in January. Treasury securities remained the largest portfolio segment, followed by Repo, then Agencies. CP remained fourth, ahead of CD , Other/​Time Deposits and VRDNs. Below, we review our latest Money Fund Portfolio Holdings statistics. (Note: See also the press release, "ICI Responds to the President'​s Working Group Report on Potential Options for Money Market Fund Reforms," which we'​ll cover in detail in tomorrow'​s News.)

Among taxable money funds, Treasury securities rose $​142.​8 billion (​5.​9%) to $​2.​571 trillion, or 52.​6% of holdings, after decreasing $​42.​6 billion in February and increasing $​22.​1 billion in January. Repurchase Agreements (​repo) increased by $​108.​3 billion (​10.​1%) to $​1.​184 billion, or 24.​2% of holdings, after increasing $​79.​7 billion in February and decreasing $​67.​7 billion in January. Government Agency Debt decreased by $​35.​1 billion (-​5.​5%) to $​601.​9 billion, or 12.​3% of holdings, after decreasing $​13.​4 billion in February and $​32.​3 billion in January. Repo, Treasuries and Agencies totaled $​4.​356 trillion, representing a massive 89.​1% of all taxable holdings.

Money funds' holdings of CP and CD saw increases in March while Other (​mainly Time Deposits) and VRDNs saw assets decrease. Commercial Paper (​CP) increased $​3.​1 billion (​1.​2%) to $​265.​6 billion, or 5.​4% of holdings, after increasing $​3.​8 billion in February and $​36.​2 billion in January. Certificates of Deposit (​CDs) rose by $​4.​1 billion (​3.​1%) to $​135.​9 billion, or 2.​8% of taxable assets, after decreasing $​9.​6 billion in February and increasing $​15.​8 billion in January. Other holdings, primarily Time Deposits, decreased $​35.​3 billion (-​23.​5%) to $​114.​6 billion, or 2.​3% of holdings, after increasing $​16.​5 billion in February and $​57.​8 billion in January. VRDNs decreased to $​15.​4 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 Tuesday.)

Prime money fund assets tracked by Crane Data were flat at $​909.​0 billion, or 18.​6% of taxable money funds' $​4.​888 trillion total. Among Prime money funds, CDs represent 14.​9% (​up from 14.​5% a month ago), while Commercial Paper accounted for 29.​2% (​up from 28.​9%). The CP totals are comprised of: Financial Company CP, which makes up 20.​5% of total holdings, Asset-​Backed CP, which accounts for 4.​5%, and Non-​Financial Company CP, which makes up 4.​2%. Prime funds also hold 4.​2% in US Govt Agency Debt, 21.​4% in US Treasury Debt, 8.​0% in US Treasury Repo, 0.​5% in Other Instruments, 8.​8% in Non-​Negotiable Time Deposits, 5.​8% in Other Repo, 3.​7% in US Government Agency Repo and 0.​7% in VRDNs.

Government money fund portfolios totaled $​2.​706 trillion (​55.​4% of all MMF assets), up $​105 billion from $​2.​601 trillion in February, while Treasury money fund assets totaled another $​1.​273 trillion (​26.​0%), up from $​1.​191 trillion the prior month. Government money fund portfolios were made up of 20.​8% US Govt Agency Debt, 14.​7% US Government Agency Repo, 48.​1% US Treasury Debt, 15.​9% 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 84.​5% US Treasury Debt, 15.​4% in US Treasury Repo, and 0.​1% in Other Instrument. Government and Treasury funds combined now total $​3.​979 trillion, or 81.​4% of all taxable money fund assets.

European-​affiliated holdings (​including repo) decreased by $​68.​4 billion in March to $​633.​4 billion; their share of holdings fell to 13.​5% from last month'​s 14.​9%. Eurozone-​affiliated holdings fell to $​444.​1 billion from last month'​s $​479.​8 billion; they account for 9.​5% of overall taxable money fund holdings. Asia & Pacific related holdings decreased to $​230.​5 billion (​4.​9% of the total) from last month'​s $​238.​2 billion. Americas related holdings increased $​26 billion to $​4.​018 trillion and now represent 85.​5% of holdings.

The overall taxable fund Repo totals were made up of: US Treasury Repurchase Agreements (​up $​120.​9 billion, or 20.​9%, to $​699.​0 billion, or 14.​3% of assets); US Government Agency Repurchase Agreements (​down $​7.​4 billion, or -​1.​7%, to $​432.​1 billion, or 8.​8% of total holdings), and Other Repurchase Agreements (​down $​5.​2 billion, or -​8.​9%, from last month to $​52.​8 billion, or 1.​1% of holdings). The Commercial Paper totals were comprised of Financial Company Commercial Paper (​up $​6.​9 billion to $​186.​6 billion, or 3.​8% of assets), Asset Backed Commercial Paper (​down $​2.​8 billion to $​40.​9 billion, or 0.​8%), and Non-​Financial Company Commercial Paper (​down $​0.​9 billion to $​38.​1 billion, or 0.​8%).

The 20 largest Issuers to taxable money market funds as of March 31, 2021, include: the US Treasury ($​2,​570.​4 billion, or 52.​6%), Federal Home Loan Bank ($​337.​5B, 6.​9%), Federal Reserve Bank of New York ($​125.​3B, 2.​6%), BNP Paribas ($​121.​8B, 2.​5%), Fixed Income Clearing Co ($​121.​3B, 2.​5%), RBC ($​116.​1B, 2.​4%), Federal Farm Credit Bank ($​97.​7B, 2.​0%), JP Morgan ($​92.​6B, 1.​9%), Federal National Mortgage Association ($​92.​3B, 1.​9%), Federal Home Loan Mortgage Co ($​70.​5B, 1.​4%), Credit Agricole ($​60.​3B, 1.​2%), Bank of America ($​60.​0B, 1.​2%), Mitsubishi UFJ Financial Group Inc ($​59.​2B, 1.​2%), Barclays ($​58.​7B, 1.​2%), Citi ($​50.​8B, 1.​0%), Sumitomo Mitsui Banking Co ($​47.​5B, 1.​0%), Societe Generale ($​43.​6B, 0.​9%), Canadian Imperial Bank of Commerce ($​40.​6B, 0.​8%), Nomura ($​39.​2B, 0.​8%) and Bank of Montreal ($​38.​5B, 0.​8%).

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: Federal Reserve Bank of New York ($​125.​3B, 10.​6%), Fixed Income Clearing Corp ($​121.​0B, 10.​2%), BNP Paribas ($​104.​3B, 8.​8%), RBC ($​91.​4B, 7.​7%), JP Morgan ($​83.​0B, 7.​0%), Bank of America ($​56.​4B, 4.​8%), Mitsubishi UFJ Financial Group Inc ($​46.​1B, 3.​9%), Citi ($​45.​2B, 3.​8%), Credit Agricole ($​44.​4B, 3.​7%) and Barclays ($​43.​0B, 3.​6%).

The 10 largest issuers of "​credit" -- CDs, CP and Other securities (​including Time Deposits and Notes) combined -- include: RBC ($​24.​7B, 5.​5%), Toronto-​Dominion Bank ($​18.​1B, 4.​0%), BNP Paribas ($​17.​6B, 3.​9%), Bank of Montreal ($​17.​5B, 3.​9%), Mizuho Corporate Bank Ltd ($​17.​4B, 3.​9%), Credit Agricole ($​15.​9B, 3.​5%), Barclays ($​15.​6B, 3.​5%), Canadian Imperial Bank of Commerce ($​15.​2B, 3.​4%), Svenska Handelsbanken ($​14.​8B, 3.​3%) and Mitsubishi UFJ Financial Group Inc ($​13.​1B, 2.​9%).

The 10 largest CD issuers include: Bank of Montreal ($​13.​1B, 9.​6%), Toronto-​Dominion Bank ($​10.​1B, 7.​5%), Sumitomo Mitsui Banking Corp ($​9.​5B, 7.​0%), Mitsubishi UFJ Financial Group Inc ($​8.​4B, 6.​2%), Canadian Imperial Bank of Commerce ($​8.​1B, 6.​0%), Mizuho Corporate Bank Ltd ($​7.​8B, 5.​7%), Sumitomo Mitsui Trust Bank ($​7.​0B, 5.​1%), Landesbank Baden-​Wurttemberg ($​5.​5B, 4.​1%), RBC ($​5.​3B, 3.​9%) and Skandinaviska Enskilda Banken ($​4.​9B, 3.​6%).

The 10 largest CP issuers (​we include affiliated ABCP programs) include: BNP Paribas ($​13.​8B, 6.​1%), RBC ($​11.​9B, 5.​2%), JP Morgan ($​9.​6B, 4.​2%), Societe Generale ($​9.​0B, 4.​0%), Barclays ($​8.​5B, 3.​8%), NRW.​Bank ($​7.​7B, 3.​4%), BPCE SA ($​7.​5B, 3.​3%), Toronto-​Dominion Bank ($​6.​9B, 3.​1%), Credit Agricole ($​6.​9B, 3.​0%) and DNB ASA ($​6.​6B, 2.​9%).

The largest increases among Issuers include: US Treasury (​up $​142.​6B to $​2,​570.​4B), Federal Reserve Bank of New York (​up $​125.​3B to $​125.​3B), Fixed Income Clearing Corp (​up $​20.​5B to $​121.​3B), Federal Home Loan Mortgage Corp (​up $​7.​9B to $​70.​5B), Citi (​up $​7.​1B to $​50.​8B), Bank of Montreal (​up $​6.​4B to $​38.​5B), Canadian Imperial Bank of Commerce (​up $​4.​7B to $​40.​6B), Bank of America (​up $​4.​7B to $​60.​0B), Banco Santander ( up $​3.​8B to $​12.​6B) and National Australia Bank Ltd (​up $​2.​7B to $​10.​9B).

The largest decreases among Issuers of money market securities (​including Repo) in March were shown by: Federal Home Loan Bank (​down $​36.​1B to $​337.​5B), Barclays PLC (​down $​18.​8B to $​58.​7B), BNP Paribas (​down $​9.​7B) to $​121.​8B), Deutsche Bank AG (​down $​8.​2B to $​11.​1B), Credit Agricole (​down $​6.​9B to $​60.​3B), DNB ASA (​down $​6.​6B to $​13.​3B), Credit Suisse (​down $​6.​1B to $​11.​7B), Federal National Mortgage Association (​down $​6.​1B to $​92.​3B), Mitsubishi UFJ Financial Group Inc (​down $​5.​5B to $​59.​2B) and RBC (​down $​5.​3B to $​116.​1B).

The United States remained the largest segment of country-​affiliations; it represents 76.​8% of holdings, or $​3.​753 trillion. France (​5.​6%, $​275.​0B) was number two, and Canada (​5.​4%, $​264.​3B) was third. Japan (​4.​4%, $​216.​7B) occupied fourth place. The United Kingdom (​2.​3%, $​111.​2B) remained in fifth place. The Netherlands (​1.​3%, $​63.​4B) was in sixth place, followed by Germany (​1.​1%, $​54.​9B), Sweden (​0.​9%, $​42.​0B), Australia (​0.​7%, $​34.​7B) and Switzerland (​0.​4%, $​20.​2B). (​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 March 31, 2021, Taxable money funds held 34.​0% (​up from 31.​3%) of their assets in securities maturing Overnight, and another 9.​4% maturing in 2-​7 days (​down from 11.​9%). Thus, 43.​4% in total matures in 1-​7 days. Another 14.​1% matures in 8-​30 days, while 14.​7% matures in 31-​60 days. Note that close to three-​quarters, or 72.​2% of securities, mature in 60 days or less (​up slightly from last month), the dividing line for use of amortized cost accounting under SEC regulations. The next bucket, 61-​90 days, holds 11.​5% of taxable securities, while 12.​7% matures in 91-​180 days, and just 3.​7% matures beyond 181 days. (​Visit our Content center to download, or contact us to request our latest Portfolio Holdings reports.)

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Crane Data'​s latest monthly Money Fund Portfolio Holdings statistics will be sent out Monday, and we'​ll be writing our normal monthly update on the March 31 data for Tuesday'​s News. But we also published a separate and broader Portfolio Holdings data set based on the SEC'​s Form N-​MFP filings on Friday. (​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 March 31, 2021 includes holdings information from 1,​047 money funds (​down 20 from last month), representing assets of $​5.​046 trillion (​up from $​4.​862 trillion). Prime MMFs now total $​921.​4 billion, or 18.​3% of the total. We review the new N-​MFP data below, and we also look at our revised MMF expense data.

Our latest Form N-​MFP Summary for All Funds (​taxable and tax-​exempt) shows Treasury holdings totaled $​2.​587 trillion (​up from $​2.​450 trillion), or a massive 51.​3% of all holdings. Repurchase Agreement (​Repo) holdings in money market funds totaled $​1.​195 trillion (​up from $​1.​084 trillion), or 23.​7% of all assets, and Government Agency securities totaled $​616.​8 billion (​down from $​651.​9 billion), or 12.​2%. Holdings of Treasuries, Government agencies and Repo (​almost all of which is backed by Treasuries and agencies) combined total $​4.​399 trillion, or a stunning 87.​2% of all holdings.

Commercial paper (​CP) totals $​275.​1 billion (​up from $​271.​7 billion), or 5.​5% of all holdings, and the Other category (​primarily Time Deposits) totals $​156.​7 billion (​down from $​192.​0 billion), or 3.​1%. Certificates of Deposit (​CDs) total $​136.​3 billion (​up from $​132.​2 billion), 2.​7%, and VRDNs account for $​79.​1 billion (​down from $​80.​2 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: $​189.​0 billion, or 3.​7%, in Financial Company Commercial Paper; $​41.​1 billion or 0.​8%, in Asset Backed Commercial Paper; and, $​45.​0 billion, or 0.​9%, in Non-​Financial Company Commercial Paper. The Repo totals were made up of: U.​S. Treasury Repo ($​719.​3B, or 14.​3%), U.​S. Govt Agency Repo ($​422.​7B, or 8.​4%) and Other Repo ($​52.​9B, or 1.​0%).

The N-​MFP Holdings summary for the Prime Money Market Funds shows: CP holdings of $​269.​9 billion (​up from $​266.​3 billion), or 29.​3%; Treasury holdings of $​200.​1 billion (​down from $​210.​2 billion), or 21.​7%; Repo holdings of $​159.​7 billion (​up from $​119.​8 billion), or 17.​3%; CD holdings of $​136.​3 billion (​down from $​132.​2 billion), or 14.​8%; Other (​primarily Time Deposits) holdings of $​107.​9 billion (​down from $​145.​4 billion), or 11.​7%; Government Agency holdings of $​39.​2 billion (​up from $​28.​8 billion), or 4.​2% and VRDN holdings of $​8.​2 billion (​down from $​8.​9 billion), or 0.​9%.

The SEC'​s more detailed categories show CP in Prime MMFs made up of: $​189.​0 billion (​up from $​182.​3 billion), or 20.​5%, in Financial Company Commercial Paper; $​41.​1 billion (​down from $​43.​4 billion), or 4.​5%, in Asset Backed Commercial Paper; and $​39.​8 billion (​down from $​40.​6 billion), or 4.​3%, in Non-​Financial Company Commercial Paper. The Repo totals include: U.​S. Treasury Repo ($​73.​3 billion, or 8.​0%), U.​S. Govt Agency Repo ($​33.​5 billion, or 3.​6%), and Other Repo ($​52.​9 billion, or 5.​7%).

Money fund expense ratios again hit their lowest level ever, falling 2 more bps to an average of 0.​08%, as measured by our Crane 100 Money Fund Index and Crane Money Fund Average, as of March 31, 2021. The previous record low for monthly annualized charged expense ratios was 0.​10% last month (​and 0.​11% in November 2014 prior to that). 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 Friday 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.​08%, down from 0.​10% 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.​08% as of Mar. 31, 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.​13% (​down 0.​01% from last month), Government Inst MFs expenses average 0.​06% (​down 0.​02% from the month prior), Treasury Inst MFs expenses also average 0.​06% (​down 0.​02% from last month). Treasury Retail MFs expenses currently sit at 0.​06%, (​down 0.​02% from the month prior), Government Retail MFs expenses yield 0.​05% (​down 0.​02% over the month). Prime Retail MF expenses are 0.​15% (​down 0.​02% from the month prior). Tax-​exempt expenses were higher, now averaging to 0.​12% (​up 0.​01% from last month).

Gross 7-​day yields were also lower, falling to 0.​10% on average in the month ended Mar. 31 2021. The Crane Money Fund Average, which includes all taxable funds tracked by Crane Data (​currently 736), shows a 7-​day gross yield of 0.​10%, down 2 basis points from the previous month. The Crane Money Fund Average is down 1.​62% from 1.​72% at the end of 2019. The Crane 100'​s 7-​day gross yield also fell 2 basis points in March, ending the month at 0.​10%, down 1.​63% 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 $​3.​869 billion (​as of 3/​31/​21). Our estimated annualized revenue totals have fallen from $​4.​587 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.

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Crane Data'​s latest Money Fund Market Share rankings show assets were mostly higher among the largest U.​S. money fund complexes in March. Money market fund assets jumped $​151.​0 billion, or 3.​2%, last month to $​4.​932 trillion. Assets have increased by $​209.​7 billion, or 4.​4%, over the past 3 months, and they'​ve increased by $​123.​0 billion, or 2.​4%, over the past 12 months through March 31, 2021. The biggest increases among the 25 largest managers last month were seen by BlackRock, Goldman Sachs, Federated Hermes, JP Morgan and First American, which grew assets by $​61.​7 billion, $​32.​3B, $​14.​4B, $​12.​4B and $​12.​3B, respectively. The largest declines in assets in March were seen by Fidelity, Wells Fargo, Invesco, Schwab and DWS, which decreased by $​8.​6 billion, $​6.​1B, $​5.​1B, $​4.​0B and $​802M, 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 March.

Over the past year through March 31, 2021, BlackRock (​up $​56.​3B, or 12.​3%), Vanguard (​up $​43.​2B, or 9.​1%), Morgan Stanley (​up $​40.​7B, or 17.​9%), Wells Fargo (​up $​32.​6B, or 17.​4%), Dreyfus (​up $​30.​7B, or 14.​9%), JP Morgan (​up $​29.​7B, or 6.​2%) and First American (​up $​24.​9B, or 23.​1%) were the largest gainers. These complexes were followed by T Rowe Price (​up $​12.​6B, or 31.​8%), Northern (​up $​11.​7B, or 6.​7%) and HSBC (​up $​6.​1B, or 15.​4%). BlackRock, JP Morgan, Goldman Sachs, Dreyfus and Morgan Stanley had the largest asset increases over the past 3 months, rising by $​84.​7B, $​46.​0B, $​30.​6B, $​22.​2B and $​20.​6B, respectively. The largest decliners over 3 months included: Schwab (​down $​12.​5B, or -​7.​2%), Fidelity (​down $​8.​8B, or -​1.​0%), Wells Fargo (​down $​5.​4B, or -​2.​7%), DWS (​down $​3.​9B, or -​11.​5%) and Federated Hermes (​down $​2.​6B, or -​0.​8%).

Our latest domestic U.​S. Money Fund Family Rankings show that Fidelity Investments remains the largest money fund manager with $​897.​1 billion, or 18.​2% of all assets. Fidelity was down $​8.​6 billion in March, down $​8.​8 billion over 3 mos., and down $​56.​0B over 12 months. BlackRock ranked second with $​522.​1 billion, or 10.​6% market share (​up $​61.​7B, up $​84.​7B and up $​56.​3B for the past 1-​month, 3-​mos. and 12-​mos., respectively). Vanguard dropped to third with $​494.​0 billion, or 10.​0% market share (​up $​9.​7B, up $​1.​3B and up $​43.​2B). JP Morgan ranked fourth with $​459.​4 billion, or 9.​3% of assets (​up $​12.​4B, up $​46.​0B and up $​29.​7B for the past 1-​month, 3-​mos. and 12-​mos.), while Goldman Sachs took fifth place with $​345.​5 billion, or 7.​0% of assets (​up $​32.​3B, up $​30.​6B and down $​6.​6B).

Federated Hermes was in sixth place with $​337.​4 billion, or 6.​8% of assets (​up $​14.​4 billion, down $​2.​6B and down $​46.​1B), while Morgan Stanley was in seventh place with $​244.​4 billion, or 5.​0% (​up $​638M, up $​20.​6B and up $​40.​7B). Dreyfus ($​217.​6B, or 4.​4%) was in eighth place (​down $​433M, up $​22.​2B and up $​30.​7B), followed by Wells Fargo ($​193.​3B, or 3.​9%, down $​6.​1B, down $​5.​4B and up $​32.​6B). Northern was in 10th place ($​167.​5B, or 3.​4%; up $​5.​7B, up $​3.​1B and up $​11.​7B).

The 11th through 20th-​largest U.​S. money fund managers (​in order) include: Schwab ($​160.​9B, or 3.​3%), SSGA ($​149.​4B, or 3.​0%), American Funds ($​145.​3B, or 2.​9%), First American ($​129.​4B, or 2.​6%), Invesco ($​71.​6B, or 1.​5%), UBS ($​55.​0B, or 1.​1%), T Rowe Price ($​48.​2B, or 1.​0%), HSBC ($​44.​5B, or 0.​9%), Western ($​32.​7B, or 0.​7%) and DWS ($​29.​8B, 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, BlackRock, JP Morgan, 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 ($​909.​4 billion), BlackRock ($​707.​2B), JP Morgan ($​668.​0B), Vanguard ($​494.​0B) and Goldman Sachs ($​466.​1B). Federated Hermes ($​348.​0B) was sixth, Morgan Stanley ($​295.​3B) was in seventh, followed by Dreyfus ($​241.​4B), Wells Fargo ($​194.​3B) and Northern ($​192.​3B) 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 April issue of our Money Fund Intelligence and MFI XLS, with data as of 3/​31/​21, shows that yields were flat in March for almost all of our Crane Money Fund Indexes. The Crane Money Fund Average, which includes all taxable funds covered by Crane Data (​currently 736), 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.​12%, the Gross 30-​Day Yield was also unchanged at 0.​12%.

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.​12% (​unch), and a Gross 30-​Day Yield of 0.​12% (​unch). Our Prime Institutional MF Index (​7-​day) yielded 0.​04% (​up a basis point) as of March 31, while the Crane Govt Inst Index was unchanged at 0.​02, and the Treasury Inst Index was also unchanged at 0.​02%. Thus, the spread between Prime funds and Treasury funds is 2 basis points, and the spread between Prime funds and Govt funds is 2 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 March.

Gross 7-​Day Yields for these indexes in February were: Prime Inst 0.​18% (​up a basis point), Govt Inst 0.​09% (​unch), Treasury Inst 0.​09% (​unch), Prime Retail 0.​19% (​unch), Govt Retail 0.​08% (​unch) and Treasury Retail 0.​08% (​unch). The Crane Tax Exempt Index was unchanged at 0.​12%. The Crane 100 MF Index returned on average 0.​00% over 1-​month, 0.​00% over 3-​months, 0.​00% YTD, 0.​09% over the past 1-​year, 1.​26% over 3-​years (​annualized), 1.​00% over 5-​years, and 0.​52% over 10-​years.

The total number of funds, including taxable and tax-​exempt, was down 9 at 902. There are currently 736 taxable funds, down 7 from the previous month, and 166 tax-​exempt money funds (​down 2 from last month). (Contact us if you'​d like to see our latest MFI XLS, Crane Indexes or Market Share report.

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The April issue of our flagship Money Fund Intelligence newsletter, which was sent to subscribers Thursday morning, features the articles: "Ultra-​Short Buckets Ready: Bond Fund Symposium '​21," which highlights comments from our recent online event; "BNY Mellon Liquidity Direct'​s George Maganas on Portals," which profiles one of the largest and oldest online money fund trading portals; and, "Worldwide MFs Rise in Q4'​20 Led by China, Ireland, France," which reviews global MMF asset flows. We also sent out our MFI XLS spreadsheet Thursday a.​m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our April Money Fund Portfolio Holdings are scheduled to ship on Monday, April 12, and our April Bond Fund Intelligence is scheduled to go out Thursday, April 15.

MFI'​s lead article says, "​We recently hosted Crane'​s Bond Fund Symposium, an online event focusing on the ultra-​short bond fund space. Given the zero rate environment and the potential for more regulations in cash, interest in the sector remains high as ultra-​shorts are once again seen as a possible alternative to Prime MMFs. We quote from some of the highlights below. (Attendees and Subscribers may access the recordings and materials via our Bond Fund Symposium 2021 Download Center.)"

It explains, "​Our Bond Fund Intelligence shows Ultra-​Short Bond Funds up 20.​3% (​vs. 7.​4% for all bond funds) in the year through 2/​28/​21, the fastest growth of any bond fund category. While Ultra-​Short and our tighter Conservative Ultra-​Short Bond Fund group together still only account for $​201.​4 billion of the $​3.​22 trillion of assets tracked by Crane Data, they should continue to grow briskly. (Short-​Term is another $​359.​0 billion.)"

Our latest "Profile" reads, "​This month, MFI interviews BNY Mellon Managing Director and Head of Liquidity Services, George Maganas, who is in charge of the firm'​s money market fund trading '​portal,' Liquidity Direct. Maganas reviews the history of one of the industry'​s largest and oldest portals, and BNY'​s main priorities and biggest challenges going forward. He also discusses the current portal marketplace and how they'​re working to make '​clients' workflow more efficient.' Our Q&​A follows."

MFI says, "Give us a little history about the platform and about yourself." Maganas tells us, "Liquidity Direct was established as an innovator in the money market fund space over 20 years ago. From the start, our focus was on providing efficiencies for our clients, and for their liquidity management and investment processes. We continue to innovate and provide superior performance for our clients globally."

He continues, "Beyond Liquidity Direct, BNY Mellon'​s affiliate Dreyfus has been in the money fund manufacturing and distribution business for over 50 years, and we really believe that depth and breadth of experience is evident in our product offering. When you combine the manufacturing, asset servicing and distribution capabilities across our investment management business, the Bank platform and Pershing, you can really see that BNYM is a significant participant that plays a critical role in the money fund industry."

Maganus adds, "Personally, I'​ve been involved with Liquidity Direct for the past three years, leading our business development activities. Prior to that, I'​ve been in global markets for over 25 years in various roles, from running electronic trading to operating other platform businesses, such as leading an FCM. Prior to this role, my experience with money market funds has been primarily as an end user at an FCM."

The "Worldwide" article tells readers, "​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."

ICI explains, "The growth rate … in US dollars was increased by US dollar depreciation over the fourth quarter of 2020.... Bond fund assets increased by 6.​8% to $​13.​05 trillion in the fourth quarter.... Money market fund assets increased by 3.​1% globally to $​8.​31 trillion.... Money market fund assets represented 13% of the worldwide total."

MFI also includes the News piece, "MMF Assets Surge Break $​4.​9T." It says, "Crane Data'​s MFI XLS shows MMFs up $​151.​0 billion to $​4.​934 trillion in March. ICI'​s latest weekly 'Money Market Fund Assets' series shows MMFs up in 7 of the past 8 weeks. (​They fell hard on April 2 though.) MMFs are up $​200 billion, or 4.​7%, year-​to-​date in 2021."

An additional News brief, "Comments Hit SEC; Due April 14," tells us, "Comments continue to appear in response to the Securities & Exchange Commission'​s announcement, 'SEC Requests Comment on Potential Money Market Funds Reform Options Highlighted in President'​s Working Group Report.'"

Our April MFI XLS, with March 31 data, shows total assets jumped $​151.​0 billion in March to $​4.​934 trillion, after rising $​30.​8 billion in February and $​5.​6 billion in January. Assets decreased $​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 and the Crane 100 both stand at 0.​12%. Charged Expenses averaged 0.​10% for the Crane MFA and 0.​10% for the Crane 100. (​We'​ll revise expenses on Friday once we upload the SEC'​s Form N-​MFP data for 3/​31.) The average WAM (​weighted average maturity) for the Crane MFA and Crane 100 was 42 (​down one day from the previous month) and 44 days (​down two days) respectively. (​See our Crane Index or craneindexes.​xlsx history file for more on our averages.)

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Investment Company Institute President & CEO Eric Pan spoke earlier this week on "Observations About the March 2020 Turmoil and Regulated Funds" at The Harvard Law School Forum on Corporate Governance. Pan says, "I would like to speak with you today about the discussions 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 like the Financial Stability Board (​FSB) and International Organization of Securities Commissions with the active participation of US financial regulators. For those familiar with the regulatory debates following the 2007-​09 global financial crisis, these discussions should give you a sense of dé​jà 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."

He explains, "As the association representing the regulated fund industry, ICI wholeheartedly supports smart regulatory reforms to make our funds and, more broadly, the financial system more resilient. We endorse reforms developed by assessing accurate data and information to fix identified problems. This approach should produce targeted reforms that respect the critical role regulated funds play in market-​based financing, which supports economic growth. We always will question, however, any proposals that seek significant changes to regulated funds if those proposals are not based on accurate data or seek to improperly equate market-​wide problems with shortcomings in fund regulation. I do have concerns that this may be happening in the current debate."

Pan comments, "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 "Money Market Funds," he tells us, "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 ten 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 SEC and other policymakers."

Pan continues, "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."

He elaborates, "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. Another example is the use of capital buffers. Capital buffers would negatively impact money market fund yields, making such funds not commercially viable, while unlikely offering any substantial protection during a liquidity crisis, such as we had last March."

Pan adds, "​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 also comments, "​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, he tells the Forum, "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."

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 April 2, 2021) includes Holdings information from 49 money funds (​down 20 funds from a week ago), which represent $​1.​605 trillion (​down from $​2.​084 trillion) of the $​4.​701 trillion (​34.​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 $​837.​6 billion (​down from $​1.​102 trillion a week ago), or 52.​2%, Repurchase Agreements (​Repo) totaling $​391.​9 billion (​down from $​537.​4 billion a week ago), or 24.​4% and Government Agency securities totaling $​196.​8 billion (​down from $​239.​5 billion), or 12.​3%. Commercial Paper (​CP) totaled $​63.​3 billion (​down from $​71.​5 billion), or 3.​9%. Certificates of Deposit (​CDs) totaled $​48.​6 billion (​down from $​51.​7 billion), or 3.​0%. The Other category accounted for $​48.​0 billion or 3.​0%, while VRDNs accounted for $​18.​9 billion, or 1.​2%.

The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $​837.​6 trillion (​52.​2% of total holdings), Federal Home Loan Bank with $​104.​3B (​6.​5%), Fixed Income Clearing Corp with $​46.​3B (​2.​9%), BNP Paribas with $​42.​8B (​2.​7%), RBC with $​39.​9B (​2.​5%), Federal Farm Credit Bank with $​36.​2B (​2.​3%), JP Morgan with $​35.​3B (​2.​2%), Federal National Mortgage Association with $​34.​1B (​2.​1%), Credit Agricole with $​25.​4B (​1.​6%) and Mitsubishi UFJ Financial Group Inc with $​23.​2B (​1.​4%).

The Ten Largest Funds tracked in our latest Weekly include: JPMorgan US Govt MM ($​217.​8 billion), Wells Fargo Govt MM ($​136.​5B), Fidelity Inv MM: Govt Port ($​130.​9B), Morgan Stanley Inst Liq Govt ($​118.​9B), JPMorgan 100% US Treas MMkt ($​106.​0B), Dreyfus Govt Cash Mgmt ($​95.​5B), First American Govt Oblg ($​87.​3B), State Street Inst US Govt ($​84.​7B), JPMorgan Prime MM ($​73.​6B) and Morgan Stanley Inst Liq Treas Sec ($​65.​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.)

​

We continue to write up the highlights from our recent Bond Fund Symposium (​Online), which took place a week and a half ago. Today, we excerpt from the session, "Short & Shorter: Ultra-​Shorts vs. SMAs," which features Dave Martucci of JP Morgan Asset Management and Jerome Schneider of PIMCO. This annual BFS "Godzilla vs. Kong" segment contrasts two of the biggest names in the ultra-​short and short-​term space. Martucci tells us, "I manage the Managed Reserves Strategy for J.​P. Morgan, which is the ultra-​short duration. We have 11 PMs across New York and London, and we manage money across ETFs, SMAs, as well as mutual funds.... We are part of the Global Liquidity Group ... under John Donohue.... [​This group has] $​839 billion in AUM, which is part of the larger J.​P. Morgan Asset Management'​s $​2.​3 trillion." (Attendees and Crane Data subscribers may access the Powerpoints, recordings and conference materials at the bottom of our "Content" page or our via our Bond Fund Symposium 2021 Download Center.)

He explains, "If you look at ... ultra-​short duration, [​the] Managed Reserves book is at $​101 billion. That is at an all-​time high, and that'​s really growth across all three segments that I talked about. I think last time we talk two years ago out in L.​A., we had just started on the ETF story.... We'​ve seen significant growth and have made a great effort to grow that product. We'​re currently at $​16.​4 billion, so that'​s been a great story for us.... [​But] we'​ve seen growth across all areas [​mutual funds and SMAs too]."

Martucci says, "There really are three [​reasons] we'​ve seen this growth, and why we will continue to see growth, in this ultra-​short area.... While I do agree ... that all asset classes did come under stress in March, and we all suffered from the ability to get liquidity, prime funds [​in particular] faced a significant amount of pressure because of ... the fear of being the last person left if there was a gate and fee drop. That caused a lot of pressure and withdrawals in that space. So, I think that pressure of gates and fees did lead a lot of investors to do a post-​mortem and kind of consider the ultra-​short space whether it be through SMAs, or mutual funds, or ETFs, or what have you. I do think that that'​s something that will continue to weigh on that sector and drive money into our space, unless that is addressed in the new regulation."

He states, "Second, it'​s ... really the extremely low interest rates. We have to deal with that, but also in the prime and government space. It makes sense, if you don'​t need the daily liquidity of that space to really take a step out into the ultra-​short space. Then the third piece of the puzzle [​and] why we'​re going to see money come into our space [​is the] potential for inflation and rising rates. We'​re starting to see people come down the curve now.... They'​ll look at money market funds, and they'​ll see either zero, or 5-​10 basis points in a credit prime fund.... The next obvious step is ultra-​short, so we are seeing that play out in our space as well."

Martucci adds, "At the end of the day, our definition of ultra-​short is really restricted from an interest rate risk [​standpoint to] one year and in -- interest rate risk is not really what'​s going get you here. It'​s going be credit risk, so you have got to make sure you'​re doing your due diligence and you have the resources backing you. And for sure we have that. I think that'​s an important attraction for our clients when considering J.​P. Morgan ultra-​short duration. For clients that don'​t necessarily need that daily liquidity, and maybe have a six month plus time horizon on their cash, we really want them to consider the Managed Reserves product. If they have a longer time horizon, out past a year, are willing to take a little more risk, then we want them to consider short duration products."

Next, Schneider says, "​I think there are a lot of things that Dave and I agree on quite honestly. I think we would agree that there'​s a lot of lessons that came out of March. I think that there'​s a lot of experience that we both share in terms of how to think about this zero rate or near zero rate environment. [​It'​s] beneficial in some ways ... we can provide value to clients looking for defense. But yet, I think it'​s really more about education. And I think what we have done inordinately over the past nine months is really educate clients about how to think about cash from a variety of perspectives. It'​s a very idiosyncratic process in that regard. Some investors are playing defense, coming down the curve, [​and] some investors are simply too scared to come out of the cave of cash."

He comments, "​For PIMCO as a whole, we think that this is a very dedicated set of instruments. We'​ve been doing ultra-​short and short-​term strategies for almost 45 years.... At this point in time, what we'​ve done is realize and rationalize over the past 20 years that it'​s a platform that requires a significant amount of resources on the portfolio management team, but also a credit research team for corporate credit, as well as structured products and asset-​backeds. And so, that'​s exactly what we'​ve done.... [T]​his is a dedicated set of products, that really needs to have the full set of attention and not just be viewed as a reduced risk core bond, or reduced risk type of fixed income portfolio, and that everything is money good, because we'​ve all experienced that those assumptions go south very quickly in this regard."

Schneider tells the BFS, "The big picture for 2021 is to be mindful of a few things: one, obviously, credit risk and credit risk management. Although, we would generally view that this is a pretty benign credit risk environment at this point in time, we do think that there will be undulations in growth. And there will still be some potential for volatility along the way. So simply buying the beta of credit, if you will, even in the short-​term sectors, is probably a little bit foolhardy at this point in time."

He explains, "​We have structural changes. One structural change is clearly LIBOR. It got pushed out to 2023, so maybe a topic for us for the next two years. But the reality is is that it'​s still going to have impacts, and we'​re starting to see it have an impact in terms of issuances of short-​dated silver floaters that come into the market."

Schneider adds, "The third element is, quite honestly, liquidity management and structure. We'​ve had a trillion dollars come into the money market space over the past year, and at the same time people have become more defensive. And so, the experiences ... in those prime money market funds are at the top of mind for us.... [P]​eople should be thinking about structure, proper vehicles to actually manage this liquidity, and more importantly, how to be opportunistic to redeploy cash from that very short end right now, which is basically being subdued by the variety of pressures, both regulatory from the SLR, to obviously, the supply and demand mismatches in bills and everything else."

He also says, "Here at Pimco, across our $​300 billion in assets, we think that there'​s true value add to being in that ultra-​short space, in that short term space, which we call low duration. [​We] try to minimize that cash element, not because it'​s bad. But being in that cash element is truly for same day liquidity, that'​s like government money market funds, Treasury Bills, things like that. Our expertise really lies outside that space, so our assets under management are reflective of that. Our money market fund size is pretty small, not because we can'​t trade repo. We trade tens of billions of repo every day. But simply because we think that the resources and acumen and the ability to provide value to clients is further out the curve."

Finally, Schneider adds, "This has been sort of the focal point of PIMCO, well before 2016 when we had money market fund reform.... The impact ... of really understanding what you own. Fundamentally, we'​ve seen time and time again, where people are taking credit risk or structural risk which is really misunderstood in a lot of ways. And ultimately, we saw it culminate in some ultra-​short strategies in 2008 that couldn'​t meet redemptions. And now we'​re sort of seeing it percolate again. Fundamentally, it'​s a story which we need to think about.... Right now, it'​s on the forefront of regulators' minds. There'​s a big difference between owning assets which are short-​dated and might mature, versus owning good assets, which are good assets and money good, but not necessarily liquidity good at this point in time. We'​ve witnessed that there very much can be a disconnect between this maturity transformation process, which probably should be addressed in a variety of ways."

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The Investment Company Institute released its latest weekly "Money Market Fund Assets" report Thursday, which shows MMFs surging again in the latest week, the 7th increase in the past 8 weeks. Money fund assets are up $​200 billion, or 4.​7%, year-​to-​date in 2021. Inst MMFs are up $​233 billion (​8.​4%), while Retail MMFs are down $​33 billion (-​2.​2%). Over the past 52 weeks, money fund assets have increased by $​100 billion, or 2.​7%, with Retail MMFs falling by $​32 billion (-​2.​2%) and Inst MMFs rising by $​132 billion (​5.​6%). We review the latest asset totals, and we also excerpt more highlights from our recent Bond Fund Symposium (​Online), below.

ICI'​s "Assets" release says, "Total money market fund assets increased by $​49.​17 billion to $​4.​50 trillion for the week ended Wednesday, March 31.... Among taxable money market funds, government funds increased by $​52.​95 billion and prime funds decreased by $​3.​07 billion. Tax-​exempt money market funds decreased by $​720 million." ICI'​s stats show Institutional MMFs increasing $​55.​0 billion and Retail MMFs decreasing $​5.​9 billion. Total Government MMF assets, including Treasury funds, were $​3.​887 trillion (​86.​4% of all money funds), while Total Prime MMFs were $​511.​1 billion (​11.​4%). Tax Exempt MMFs totaled $​99.​3 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 $​5.​86 billion to $​1.​49 trillion. Among retail funds, government money market fund assets decreased by $​3.​40 billion to $​1.​15 trillion, prime money market fund assets decreased by $​1.​91 billion to $​251.​96 billion, and tax-​exempt fund assets decreased by $​548 million to $​88.​26 billion." Retail assets account for just over a third of total assets, or 33.​2%, and Government Retail assets make up 77.​2% of all Retail MMFs.

ICI adds, "Assets of institutional money market funds increased by $​55.​02 billion to $​3.​00 trillion. Among institutional funds, government money market fund assets increased by $​56.​35 billion to $​2.​73 trillion, prime money market fund assets decreased by $​1.​16 billion to $​259.​16 billion, and tax-​exempt fund assets decreased by $​171 million to $​11.​05 billion." Institutional assets accounted for 66.​8% of all MMF assets, with Government Institutional assets making up 91.​0% of all Institutional MMF totals.

In other news, we wrote last week about our recent Bond Fund Symposium virtual conference. (​See our April 1 News, "Bond Fund Symposium Highlights: Davis, Driscoll, Rothweiler Comment and see our Bond Fund Symposium 2021 Download Center.) Today, we quote from the session, "Regulatory Update: Latest Bond Fund Issues," which featured Jamie Gershkow from Stradley Ronon Stevens & Young and Aaron Withrow from Dechert LLP. Gershkow gave a "Money Market Fund Update" and recapped recent discussions surrounding potential future regulations.

She explains, "Money market funds have been in the news a fair amount recently. This past December, the President'​s Working Group issued a report on how money market funds fared during the liquidity stresses in the market in March 2020. The report essentially concluded that more work is needed to be done to reduce some of the risks posed by prime and tax exempt money market funds that may lead to or exacerbate stresses in the short-​term funding markets. The report sets forth 10 different policy measures that could be considered for prime and tax exempt money market funds, which I'​ll discuss on the next slide. The report does not endorse any one specific policy measure in particular, and recognizes also that some of these may be used in combination and [​as part of] a larger reform package.... The reports really intended to start the discussion of what rulemaking may be appropriate for money market funds, given the events that happened last March. The report leaves government money market funds out of the discussion of potential policy measures."

Gershkow tells us, "The SEC then subsequently requested comment on this report -- comments are due in a few weeks on April 12th. The SEC Request for Comment is a little bit broader than the report itself, and asks for comment on these 10 specific policy measures. [​It] also asks for comment generally on other types of reform options that may be useful for money funds [​and on] just improving the overall short-​term funding markets and the effectiveness of the previously enacted reforms that had been implemented for 2a-​7 after the last global financial crisis."

She continues, "​The Financial Stability Board also has indicated that they expect to deliver policy proposals in July to enhance the resilience of money market funds. And just this morning, ESMA [​the European Securities and Markets Athority] issued a consultation paper in the context of reviewing their regulations on money market funds and have asked for feedback. So lots is going on from kind of all over the place on money market funds."

Gershkow comments, "​So this slide lists the 10 different policy measures that are in the President'​s Working Group Report. Taking a step back, also, this report identifies three overarching goals of money market funds reform to be considered as these are being evaluated. The first one is improving vulnerabilities in money market funds that may contribute stresses in the market. The second is improving the overall resilience and functioning of the short-​term funding market. And a third is reducing the likelihood that [​government] or taxpayer support may be needed in the future to support money market funds."

She states, "​So, I don'​t know that we have time to go through in detail all of these, but some things I will highlight here. The first option here [​is the] removal of the tie between liquidity and fee and gate thresholds. So currently, under rule 2a-​7, the board is permitted to impose a liquidity fee or a redemption fee for certain types of money market funds, once weekly liquid assets drop below 30%. And what was observed this past March was that, that bright lines has kind of created this dynamic that exacerbated redemptions in a time of stress as investors saw liquidity dropping close to 30%, because this is publicly posted on websites every day. Investors got kind of scared that their money may be tied up in a redemption gate if it dropped below 30% and they increased redemption behavior to avoid the prospect of that happening.... [​T]​his policy proposal recognizes some of those events from this past March and suggests removing that that fees engage be tied to 30% liquidity and would, instead, generally be based on the best interest finding by the board."

Gershkow continues, "​The next reform here, reforms of conditions for imposing redemption gates, sets forth various options that could be reforms with respect to how redemption gates are currently implemented.... Also, ... imposing a higher with weekly liquid asset requirement. Then we also have counter-​cyclical weekly liquid asset requirements. So this would be upon certain events on the 30% weekly liquid asset thresholds could actually move maybe down to 20, 25% and other requirements related to that such as fees engage and move in tandem. A lot of these policy proposals are more conceptual in nature without full details built out yet. So, I think the comment letters on this will be really insightful to see what potential issues, you know, are out there."

She adds, "Another policy proposal would be floating NAVs for all prime and tax exempt money market funds. Right now, retail funds are permitted to use the amortized cost method of valuation. Swing pricing requirements are another option here. This is something we'​ve seen in the mutual fund side, and here at suggested that it could perhaps apply to money market funds. I think there [​are] operational issues with same day settlement matters related to money market funds, that may make this not quite so feasible."

Finally, Gershkow tells the BFS, "Then the other requirements are more ... bank-​like regulatory requirements -- minimum balance at risk, capital buffers, a private liquidity facility. These are some repeats from after the last global financial crisis; things that were proposed or discussed, but not ultimately adopted. They'​ve made their way back into this report, and [​may be] considered in future rulemaking.... So a lot more [​remains] to be seen. If we'​re following the playbook from last global financial crisis, you know, comments [​are] due to the SEC on this, then last time there was a roundtable, and then policy proposals to amend 2a-​7. So, an interesting area for us I'​ll fall on for sure."

​

Late last week, we hosted Crane'​s Bond Fund Symposium (​Online), which took place virtually after being cancelled last year due to the pandemic. Today, we quote from the session, "Senior Portfolio Manager Perspectives," which featured BlackRock'​s Brett Davis, Putnam Investments' Joanne Driscoll and UBS Asset Management'​s Dave Rothweiler. Thanks again to those who attended and supported BFS, and attendees and Crane Data subscribers may access the Powerpoints, recordings and conference materials at the bottom of our "Content" page or via our Bond Fund Symposium 2021 Download Center. (Mark your calendars for our return to live events with Crane'​s Money Fund Symposium, which is now scheduled for Sept. 21-​23, 2021 at The Loews Philadelphia, in Philadelphia, Pa, and for next year'​s Bond Fund Symposium, March 28-​29, 2022, in Newport Beach, Calif.)

Moderator Pete Crane asked panelists to give a little background first. Driscoll tells us, "​I'​m head of the Short-​Term Liquid Markets Group, and a member of Putnam'​s Fixed Income Management Committee. My team is responsible for Putnam'​s short end products, including the short-​term bond mandates, money market funds, cash management, [​and] securities lending. In terms of the Ultra-​Short Duration Fund, I'​m the lead PM, and in that space, we manage about $​18 billion."

Rothweiler comments, "​I'​ve been in the business over 25 years as a credit analyst, trader and PM. I spent most of my career as a PM for UBS Asset Management. I'​ve managed 2a-​7 funds, short duration portfolios, [​and] intermediate strategies. Globally, we have about $​300 billion in fixed income assets with about $​88 billion in global money markets, of which $​74 billion is U.​S. In terms the ultra-​short space, I co-​manage the $​3 billion UBS Ultra-​Short Income Fund, with additional separate account assets."

Davis says, "I am one of the portfolio managers on the cash and liquidity platform ... responsible for managing several short-​term, fixed income separately managed accounts. Most of our client bases are corporations, financials, and insurance companies. In addition, I'​m one of the portfolio managers responsible for managing our active ultra-​short mutual fund, which we call Short Obligations, as well as our active ultra-​short ETF, which is ticker iCash."

When asked, "What are you buying?" Rothweiler answers, "I would say we see the most value in Tier 2 commercial paper.... If you think about the amount of spread you can get in Tier 2 CP relative to longer dated corporates, we view that as the place to be. Let'​s face it, in terms of the credit markets, things have become notably richer since the March crisis. If you want to favor somewhat of an upper quality type bias, asset-​backeds are a nice way to play that as well. I'​d say from that standpoint, that'​s probably one of our more favored trades."

Driscoll adds, "​I agree with Dave. We also favor Tier 2 commercial paper. A lot of the issuers that have been out of the market since March of last year have come back, so Tier 2 CP outstanding is up almost 50% year-​to-​date. So that'​s been a nice move. We'​re also really active in the investment grade new issue market, because that'​s a place that allows us to get decent sized positions.... [​With] front end issuance, in the IG space last year, there was $​425 billion taken out of the market with calls and tenders ... that, combined with inflows into short-​term bond funds, really exacerbated that supply-​demand imbalance. Luckily, we'​ve been seeing, at least this month, a pickup.... But ... with yields and spread so compressed, it'​s a time where you have to take a more conservative approach, and we'​re very selective on credit in this market."

Davis responds, "​Similarly, to what Dave and Joanne said, we are a big participant in the Tier 2 commercial paper market. We buy Tier 1 and Tier 2. We look at the relative value between those two. For example, at the end of last year, you did have some supply-​demand dynamics, where you actually had fairly cheap Tier 1 commercial paper a little bit further out the curve that maybe the money market funds weren'​t as big participants in. The ultra-​short and SMA spaces were very active because we knew that rates were probably going to go tighter as we entered the New Year, and we wanted to hold onto that excess yield for as long as we possibly could.... We really stay away from that bottom rung of the investment grade universe, so anything that'​s really rated BBB- or anything that we think will get downgraded to triple B-​minus during the duration of our holding periods. So, we'​re a little bit more conservative from a credit standpoint."

When asked about the importance of cash flows, Rothweiler comments, "​Touching on what Joanne just said in terms of the amount of tendering and calls that have been going on in the corporate market, it always seems like you get the cash when you least want it.... One thing we look at is also shareholder concentration risk. What'​s the risk of shareholders needing their cash at various points in time? For us, with a separate account there'​s probably less risk of that. But in a commingled fund, like the UBS Ultra-​Short Income Fund, thanks to our Client Services team we have a lot of contact, oftentimes with FA'​s, with larger shareholders. We try to forecast that as well on the other side in terms of any kind of outsized risk."

Driscoll says, "​Our model is probably a little different from others. Putnam is an advisor sold firm, so ours is really driven by external and internal advisor consultants, and they have the relationships with the financial advisors. We think about what our clients are looking for. Some are looking for more income than a money market fund with a little more risk, and others are trying to shorten their duration.... When we launched the Ultra-​Short Duration Income Fund in 2011, we limited any one client to about 10 percent of the fund, just to limit that volatility. Now that the funds are more like $​17 billion, individual clients aren'​t as much of an issue. But ... we have to be really cognizant of the fact of who'​s recommending our fund, what the biggest concentrations are, and ... the profile of our shareholders."

She adds, "I think financial advisors are really driving a lot of the growth, because their model, they don'​t get compensated, for the most part, to sell the money market fund. But you do if you get into an ultra-​short fund, so it'​s in their best interest. [​A] fund like ours, it sits just outside of the money market space. We'​re more conservative than a typical, ultra-​short ... so, they'​ve been very comfortable with how we position our product."

Discussing last March, Rothweiler states, "​If you cut your teeth in 2008, if you got through that, you could probably see this coming to some extent by beginning of March.... There'​s a life lesson that I learned in '​08 -- there'​s no liquidity like a maturity.... So, when the bid on the Street dries up or becomes more challenged, having a properly structured portfolio where you have maturities, where you have liquidity that you can get to [​is key]. That was just another example that reinforces our process at UBS. That to manage risk, liquidity is a big part of it, whether it'​s a 2a-​7 fund or an ultra-​short."

Davis says, "Another source of liquidity is diversity of asset classes, because certain debts from the dealer community will act in different ways during different points of crisis. We saw certain debts freeze up a little bit earlier than others, where we still had liquidity in corporate bonds maybe a little bit further out the curve, or ABS securities, or municipal bonds. So, that is another way to have diversity and liquidity in a portfolio. We think by having the natural liquidity ... by having a maturity is most beneficial during that period of time.... The different asset classes that we had within the portfolio, and the different pieces of paper that we had really helped with the liquidity profile."

She adds, "​That being said, also on the SMA side, a lot of it is driven by the Client Investment Guidelines. We make sure we take the time to educate them, because the front end of the market is a little bit different than other parts of the market. What is the majority of the issuance that we are buying? If it'​s commercial paper, nearly 80% of it is in financials or asset backed commercial paper. So, if you have diversification limits on financials, just making sure that you have other available asset classes and other available security types to make sure that by being too restrictive you'​re not actually creating more risks for the portfolio."

Finally, when asked about ESG, Davis answers, "​Across all of our SMAs, our Cash and Liquidity platform, we have PM integration within ESG, meaning that, regardless of what the underlying mandate is ... our credit analysts are doing environmental, social, and governance analysis, along with their typical financial analysis. We believe we are improving, even though these are short-​term funds, the long-​term performance by bringing forward what we think are future risks to today. It also allows us to identify possible new opportunities for our funds even if they are not ESG focused." Watch for more excerpts in coming days and in the April issues of our Money Fund Intelligence and Bond Fund Intelligence.

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