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Consulting Services Sample

Crane Data released its June Money Fund Portfolio Holdings Wednesday, and our latest collection of taxable money market securities, with data as of May 31, 2015, shows jumps in holdings of Other (Time Deposits), CD, Repo, and CP, and drops in holdings of Treasuries and Agencies. Money market securities held by Taxable U.S. money funds overall (those tracked by Crane Data) increased by $31.6 billion in May to $2.436 trillion, after dropping $49.3 billion in April, $19.2 billion in March, and $52.1 billion in February. Repos remained the largest portfolio segment, just ahead of CDs. Treasuries stayed in third place, followed by Commercial Paper. Agencies were fifth, followed by Other (mainly Time Deposits), then VRDNs. Money funds' European-affiliated securities represented 28.8% of holdings, down from 29.3% the previous month. Below, we review our latest Money Fund Portfolio Holdings statistics.

Among all taxable money funds, Repurchase agreements (repo) increased $10.7 billion (2.1%) to $527.5 billion, or 21.7% of assets, after decreasing $113.6 billion in April and increasing $98.7 billion in March. Certificates of Deposit (CDs) were up $10.8 billion (2.1%) to $524.1 billion, or 21.5% of assets, after rising $1.7 billion in April and dropping $37.4 billion in March. Treasury holdings decreased $4.2 billion (1.0%) to $408.8 billion, or 16.8% of assets, while Commercial Paper (CP) jumped $4.1 billion (1.1%) to $390.3 billion, or 16.0% of assets. Government Agency Debt decreased $3.2 billion (1.0%) to $331.6 billion, or 13.6% of assets. Other holdings, primarily Time Deposits, jumped $13.7 billion to $230.1 billion, or 9.4% of assets. VRDNs held by taxable funds decreased by $100 million to $23.5 billion (1.0% of assets).

Among Prime money funds, CDs still represent over one-third of holdings at 34.5% (up from 34.4% a month ago), followed by Commercial Paper at 25.7%. The CP totals are primarily Financial Company CP (15.1% of total holdings), with Asset-Backed CP making up 5.5% and Other CP (non-financial) making up 5.1%. Prime funds also hold 6.7% in Agencies (up from 6.5%), 4.2% in Treasury Debt (down from 5.0%), 4.7% in Other Instruments, and 5.8% in Other Notes. Prime money fund holdings tracked by Crane Data total $1.520 trillion (up from $1.492 trillion last month), or 62.4% of taxable money fund holdings' total of $2.436 trillion.

Government fund portfolio assets totaled $441 billion in May, the same as April, while Treasury money fund assets totaled $475 billion in May, down from $472 billion at the end of April. Government money fund portfolios were made up of 52.0% Agency Debt, 25.1% Government Agency Repo, 3.9% Treasury debt, and 18.1% in Treasury Repo. Treasury money funds were comprised of 69.1% Treasury debt, 30.1% Treasury Repo, and 0.8% in Government agency, repo and investment company shares. Government and Treasury funds combined total $916 billion, or 37.6% of all taxable money fund assets.

European-affiliated holdings rose $4.5 billion in May to $702.2 billion (among all taxable funds and including repos); their share of holdings fell to 28.8% from 29.0% the previous month. Eurozone-affiliated holdings decreased $400 million to $378.3 billion in May; they now account for 15.5% of overall taxable money fund holdings. Asia & Pacific related holdings increased by $5.3 billion to $291.4 billion (12.0% of the total). Americas related holdings increased $23.0 billion to $1.440 trillion, and now represent 59.1% of holdings.

The overall taxable fund Repo totals were made up of: Treasury Repurchase Agreements (up $20.0 billion to $273.6 billion, or 11.2% of assets), Government Agency Repurchase Agreements (down $9.2 billion to $164.8 billion, or 6.8% of total holdings), and Other Repurchase Agreements ($89.1 billion, or 3.7% of holdings, same as last month). The Commercial Paper totals were comprised of Financial Company Commercial Paper (up $2.8 billion to $228.8 billion, or 9.4% of assets), Asset Backed Commercial Paper (down $800 million to $83.8 billion, or 3.4%), and Other Commercial Paper (up $2.0 billion to $75.7 billion, or 3.2%).

The 20 largest Issuers to taxable money market funds as of May 31, 2015, include: the US Treasury ($408.8 billion, or 18.3%), Federal Home Loan Bank ($208.9B, 9.4%), Federal Reserve Bank of New York ($137.6B, 6.2%), Wells Fargo ($71.8B, 3.2%), Credit Agricole ($70.6B, 3.2%), BNP Paribas ($63.9B, 2.9%), JP Morgan ($60.4B, 2.7%), RBC ($58.8B, 2.6%), Bank of Nova Scotia ($57.4B, 2.6%), Bank of Tokyo-Mitsubishi UFJ Ltd ($55.5B, 2.5%), Bank of America ($52.2B, 2.3%), Federal Home Loan Mortgage Co. ($45.1B, 2.0%), Toronto-Dominion Bank ($43.9B, 2.0%), Natixis ($43.2B, 1.9%), Barclays PLC ($42.9B, 1.9%), Sumitomo Mitsui Banking Co ($42.3B, 1.9%), Federal Farm Credit Bank ($42.0B, 1.9%), Credit Suisse ($40.1B, 1.8%), Mizuho Corporate Bank Ltd. ($37.0B, 1.7%), DnB NOR Bank ASA, ($35.4B, 1.6%), and Bank of Montreal ($35.3B, 1.6%).

In the repo space, the Federal Reserve Bank of New York's RPP program issuance (held by MMFs) remained the largest program with $137.6B, or 26.1%, up from $106.2B a month ago. The 10 largest Fed Repo positions among MMFs on 5/31 include: JP Morgan US Govt ($16.1B), State Street Inst Lq Res ($8.5B), Morgan Stanley Inst Lq Govt ($7.7B), BlackRock Lq T-Fund ($6.4B), UBS Select Treas ($6.1B), JP Morgan US Trs Plus ($5.5B), First American Govt Oblg ($5.0B), Wells Fargo Adv Trs Plus ($4.6B), Schwab Govt MMkt ($4.2B), and Fidelity Cash Central Fund ($4.4B). The 10 largest Repo issuers (dealers) (with the amount of repo outstanding and market share among the money funds we track) include: Federal Reserve Bank of New York ($137.6B, 26.1%), Bank of America ($40.8B, 7.7%), BNP Paribas ($38.9B, 7.4%), Wells Fargo ($37.7B, 7.1%), Credit Agricole ($30.7B, 5.8%), JP Morgan ($29.5B, 5.6%), Societe Generale ($24.2B, 4.6%), Barclays PLC ($22.7B, 4.3%), Credit Suisse ($22.1B, 4.2%), and Citi ($21.1B, 4.0%).

The 10 largest issuers of "credit" -- CDs, CP and Other securities (including Time Deposits and Notes) combined -- include: Bank of Tokyo-Mitsubishi UFJ Ltd ($48.3B, 4.8%), Sumitomo Mitsui Banking Co ($42.3B, 4.2%), RBC ($41.5B, 4.1%), Bank of Nova Scotia ($40.1B, 3.9%), Credit Agricole ($39.9B, 3.9%), Toronto Dominion Bank ($37.2B, 3.7%), DnB NOR Bank ASA ($35.4B, 3.5%), Natixis ($35.3B, 3.5%), Wells Fargo ($34.0B, 3.4%), and Skandinaviska Enskilda Banken AB ($32.5B, 3.2%).

The 10 largest CD issuers include: Bank of Tokyo-Mitsubishi UFJ Ltd ($37.6B, 7.2%), Sumitomo Mitsui Banking Co ($35.2B, 6.7%), Toronto-Dominion Bank ($33.5B, 6.4%), Mizuho Corporate Bank Ltd ($30.6B, 5.9%), Bank of Montreal ($28.8B, 5.5%), Bank of Nova Scotia ($28.3B, 5.4%), Wells Fargo ($25.1B, 4.8%), RBC ($21.5B, 4.1%), Natixis ($19.2B, 3.7%), and Sumitomo Mitsui Trust Bank ($18.5B, 3.5%).

The 10 largest CP issuers (we include affiliated ABCP programs) include: JP Morgan ($22.3B, 6.8%), Commonwealth Bank of Australia ($17.2B, 5.3%), Westpac Banking Co ($17.2B, 5.3%), RBC ($15.7B, 4.8%), National Australia Bank Ltd ($12.0B, 3.7%), Lloyds TSB Bank PLC ($12.0B, 3.7%), BNP Paribas ($11.4B, 3.5%), Bank of Nova Scotia ($10.9B, 3.3%), HSBC ($10.6B, 3.3%), and Australia & New Zealand Banking Group Ltd ($9.4B, 2.9%).

The largest increases among Issuers include: Federal Reserve Bank of New York (up $31.5B to $137.6B), Skandinaviska Enskilda Banken AB (up $6.2B to $32.5B), ING Bank (up $4.1B to $27.8B), Swedbank AB (up $3.9B to $22.4B), Federal Home Loan Bank (up $3.7B to $208.9B), DnB NOR Bank ASA (up $3.4B to $35.4B), Canadian Imperial Bank of Commerce (up $3.4B to $20.6B), Goldman Sachs (up $2.8B to $14.0B), Lloyds TSB Bank PLC (up $2.8B to $25.1B), and RBC (up $2.6B to $58.8B). The largest decreases among Issuers of money market securities (including Repo) in May were shown by: Barclays PLC (down $7.6B to $42.9B), Bank of America (down $4.7B to $52.2B), Federal Home Loan Mortgage Co. (down $4.4B to $45.1B), US Treasury (down $4.2B to $408.8B), BNP Paribas (down $3.4B to $63.9B), Standard Chartered Bank (down $2.3B to $14.6B), Federal National Mortgage Association (down $2.0B to $32.2B), Citi (down $1.9B to $29.5B), Credit Mutuel (down $1.3B to $19.0B), and FMS Wertmanagement (down $900M to $8.4B).

The United States remained the largest segment of country-affiliations; it represents 49.1% of holdings, or $1.199 trillion (up $13B). France (9.9%, $240.7B) remained in second, followed by Canada (9.8%, $238.8B), and Japan (7.4%, $181.3B). The U.K. (5.1%, $124.2B) moved up to fifth, while Sweden (4.3%, $104.2B) was sixth. Australia (3.6%, $86.8B), The Netherlands (3.1%, $74.7B), Switzerland (2.5%, $60.1B), and Germany (2.0%, $49.4B) round out the top 10 among country affiliations. (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 May 31, 2015, Taxable money funds held 27.3% of their assets in securities maturing Overnight, and another 13.8% maturing in 2-7 days (41.1% total matures in 1-7 days). Another 22.1% matures in 8-30 days, while 12.2% matures in 31-60 days. Note that three-quarters, or 75.4% of securities, mature in 60 days or less, the dividing line for use of amortized cost accounting under the new pending SEC regulations. The next bucket, 61-90 days, holds 11.5% of taxable securities, while 10.5% matures in 91-180 days and just 2.7% matures beyond 180 days.

Crane Data's Taxable MF Portfolio Holdings (and Money Fund Portfolio Laboratory) were updated yesterday, and our MFI International "offshore" Portfolio Holdings and Tax Exempt MF Holdings will be released late this week. Visit our Content center to download files or visit our Portfolio Laboratory to access our "transparency" module. Contact us if you'd like to see a sample of our latest Portfolio Holdings Reports or our new "Holdings Reports Funds Module." The new file allows user to choose funds (pick a fund then click its ticker) and show Performance alongside Composition, Country breakout, Largest Holdings and Fund Information.

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Consulting Services News

Mar 06
 

The March issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Consolidations & Liquidations Again Loom in MMF Sector," which features the merger trend that is likely to continue; "HSBC Global AM's Curry on US, European & EM MMFs," which profiles Jonathan Curry of HSBC Global Asset Management; and, "Deposit Growth Rebounds After Stall; Sweeps Fueling," which compares the growth of bank deposits vs. money fund assets. We've also updated our Money Fund Wisdom database with Feb. 29 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our March Money Fund Portfolio Holdings are scheduled to ship on Tuesday, March 10, and our March Bond Fund Intelligence is scheduled to go out Friday, March 13. (Note: Our apologies, but we've cancelled our upcoming Bond Fund Symposium in Boston!)

MFI's "Consolidations" article says, "Pressure on asset management and financial stocks is heating up the merger market, as evidence by the recent announcements between Franklin and Legg Mason and Morgan Stanley and E*TRADE. Given the potential of looming negative yields and fee waivers, this trend should only accelerate as we move through 2020. We review the latest news here."

It explains, "Last year, we saw Federated take over PNC's fund business and Invesco absorb OppenheimerFunds, and now it appears we'll see more fund consolidation in 2020. A press release entitled, 'Franklin Templeton to Acquire Legg Mason, Creating $1.5 Trillion AUM Global Investment Manager,' tells us, 'Franklin Resources ... operating as Franklin Templeton ... announced that it has entered into a definitive agreement to acquire Legg Mason, Inc.'"

Our "HSBC Global AM" profile reads, "This month, MFI speaks with Jonathan Curry, Global CIO for Liquidity and CIO, Americas for HSBC Global Asset Management. The firm recently filed to launch an ESG money fund in the U.S., and it continues to be a major player globally and in a number of emerging markets. We discuss their funds, the latest money market developments and a number of other issues below.

MFI says, "Give us a little bit of history." Curry answers, "We've been running money funds for over 25 years in a very broad range of currencies. We treat liquidity as an asset class in its own right, so we've got dedicated investment professionals, client service teams, distribution teams, product teams, all focused on this asset class. Liquidity represents around 20 percent of the AUM ... of HSBC Global Asset Management. It's a very important part of the of the asset management franchise here at HSBC. I joined HSBC in 2010, as the Global Chief Investment Officer for Liquidity. I moved to the U.S. in Q'3 2016, to take on the additional responsibilities that I have today. Prior to joining HSBC, I was at Barclays Global Investors."

MFI says, "Tell us about the fund lineup." Curry continues, "For liquidity, we finished 2019 with just under $100 billion, $98.1 billion to be precise. We manage liquidity solutions in 11 currencies globally, which is one the widest breadth of currencies of any manager. It covers both developed and emerging market currencies. We have offerings in U.S. dollar, in sterling, in euros, which are where the bulk of the assets that we have are managed. In Asia, we have Hong Kong dollar funds, RMB, Australian dollar, Taiwan dollar and Indian rupee. In addition to sterling and euros in Europe, we have Turkish lira. In the Americas, in addition to US dollars, we have a Canadian dollar offering and an Argentinian peso offering."

The article on "Deposits" tells readers, "U.S. money fund assets grew by 20.8% in 2019, the biggest increase since 2007. Meanwhile, bank deposits picked up the pace to grow by 5.4% last year, after growing a mere 1.7% in 2018 (the slowest rate since 1995), according to the Federal Reserve's H.6 data series. Money funds added $565.5 billion (to $3.311 trillion) and MMDAs gained $503.6 billion (to $9.868 trillion) for 2019, while Small Time Deposits, or bank CDs, grew by $60.3 billion."

It adds, "Assets of MMDAs began growing again in June 2019, following a stall starting in late 2018. Meanwhile, money fund assets have paused year-to-date in 2020, after a scorching 2019."

The latest MFI also includes the News brief, "Money Fund Assets Up in February," which writes, "Crane Data shows MMFs grew by $23.4 billion to $3.977 trillion in February, following January's $3.7 billion decline. ICI shows assets jumping $49.3 billion in the first week of March."

A second News piece titled, "Fed Cuts by 50; Yields Head to 1.0%," says, "Worried over volatility and the coronavirus, the Federal Reserve cut rates in a surprise 50 basis point move, lowering the Fed funds target rate range to 1.00-1.25%. Money fund yields are expected to plummet in coming days and should break below the 1.​0% level in April."

Our March MFI XLS, with Feb. 29 data, shows total assets rose by $23.4 billion in February to $3.977 trillion, after falling $7.8 billion in January and rising $72.7 billion in December and $40.9 billion in November. Our broad Crane Money Fund Average 7-Day Yield fell to 1.27% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down a basis points to 1.41%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA was unchanged at 1.68% and the Crane 100 fell to 1.68%. Charged Expenses averaged 0.41% (unchanged from last month) and 0.27% (unchanged from last month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 32 (up two days) and 33 days (unchanged) respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Feb 07
 

The February issue of our flagship Money Fund Intelligence newsletter, which was sent out to subscribers Friday morning, features the articles: "Money Market Supply to Slow in '20 Says JPM's Ho at MFU," which features one of the highlights from our recent Money Fund University; "Cohen, Gershkow Review MMF Regs, Reforms at MFU," which excerpts from the "Money Fund Regulations: 2a-7 Basics & History" MFU session; and, "Social Gets Hotter, But What Exactly Is an ESG MMF?," which writes about the growing but confusing ESG Money Fund space. We've also updated our Money Fund Wisdom database with Jan. 31 statistics, and sent out our MFI XLS spreadsheet Friday a.m. (MFI, MFI XLS and our Crane Index products are all available to subscribers via our Content center.) Our February Money Fund Portfolio Holdings are scheduled to ship on Tuesday, Feb. 11, and our Feb. Bond Fund Intelligence is scheduled to go out Friday, Feb. 14.

MFI's "Money Market Supply" article says, "Crane Data recently hosted its Money Fund University in Providence, R.​I. While MFU is meant to be our 'basic training' conference, there are usually discussions of hot topics and always a wealth of statistics of interest even to veterans in the space. We excerpt some of the highlights below and in the article to the right."

It explains, "J.P. Morgan Securities' Teresa Ho presented the 'Instruments of the Money Markets Intro,' giving an overview of the types of money market securities owned by money funds. She tells us, 'Borrowers use [the money markets] as a way to finance their short-term expenses, and investors use [it] as a way to temporarily invest their cash.... As long as there's a demand for liquidity and a mismatch between cash inflows and cash outflows, there is a need for money markets." (Note: Crane Data Subscribers and Money Fund University Attendees may access the Powerpoints and recordings for MFU in our 'Money Fund University 2020 Download Center.')"

Our "Cohen, Gershkow Review" piece reads, "Our recent MFU event also always contains a segment on 'Money Fund Regulations: 2a-7 Basics & History,' which featured Dechert's Steve Cohen & Stradley Ronon's Jamie Gershkow. The two reviewed regulations governing money funds and recent reforms, and also touched on some topics like ESG and ETFs. Cohen tells us, 'Money market funds were developed in the 1970s as an option for investors to purchase essentially a pool of short-term securities that gave them higher returns than banks were providing at the time.'"

He continues, "Initially funds had to get exempted from the SEC in order to operate money market funds using amortized cost, that was up until 1983. In 1983, the SEC adopted Rule 2a-7 in a much more basic form than today. It codified those exempted borders and allowed all money market funds to operate with a stable NAV, using amortized cost, or the penny-rounding method.... Amortized cost allows a fund to take the acquisition cost of its security and adjust for amortization of the premium or accretion of the discount."

Our "Social Gets Hotter" piece says, "ESG and Social money market funds keep getting hotter, but it still remains to be seen whether the strategy makes sense in the money markets. The latest events in the space include webinars from fund ratings firm Fitch Ratings and online money fund trading portal Institutional Cash Distributors (​ICD), the launch of another social or 'impact' share class and separate deposit program, and the debut of UBS Select ESG Prime (which appears in the rankings this month)."

This week's "ESG in Money Market Funds" webinar (see yesterday's Crane Data News, which featured Fitch's Alastair Sewell and SSGA's Will Goldthwait, discussed ESG Money Market Funds and their definition problems in detail. Sewell comments, "Certain high profile investors, both in Europe and ... in the U.S., have indicated an interest in having ESG exposure in the cash element of their portfolio. So, what does that mean for money market funds? We can see that the number of ESG money market funds has increased sharply.... We now count a total of 34 explicit, dedicated ESG money market funds globally. The question presumably on everyone's minds then is, 'What exactly is an ESG money market fund?'"

The latest MFI also includes the News brief, "SEC Stats: MMF Assets Break $4.0 Trillion, Up 18th Month; Prime Dips," which writes, "The Securities & Exchange Commission’s latest 'Money Market Fund Statistics' showed that total money fund assets rose by $37.2 billion to a record $4.021 trillion in December, the 18th straight month of gains. Prime MMFs decreased $26.5 billion to close at $1.095 trillion, while Govt & Treasury funds rose by $64.7 billion to a record $2.783 trillion. Tax Exempt funds fell by $1.0 billion to $142.8 billion. Yields fell for Prime MMFs and Govt MMFs, while Tax-Exempt MMFs increased rates."

A second News piece titled, "Federated Renamed Federated Hermes," explains, "J. Christopher Donahue, president and CEO, comments in their earnings release, 'Federated reached new records across all three major asset classes -- equity, fixed income and money market -- with the latter increasing by $94 billion in 2019 as Federated's diverse lineup of liquidity products offered competitive yields for investors seeking cash-management solutions.’ The release explains, ‘As announced earlier this month, Federated will change its name to Federated Hermes.'"

Our February MFI XLS, with Jan. 31 data, shows total assets fell by $7.8 billion in January to $3.950 trillion, after rising $72.7 billion in December, $40.9 billion in November and $85.2 billion in October. Our broad Crane Money Fund Average 7-Day Yield fell to 1.29% during the month, while our Crane 100 Money Fund Index (the 100 largest taxable funds) was down 4 basis points to 1.42%.

On a Gross Yield Basis (7-Day) (before expenses are taken out), the Crane MFA fell 3 basis points to 1.69% and the Crane 100 fell to 1.69%. Charged Expenses averaged 0.40% (down one basis point from last month) and 0.27% (unchanged from last month), respectively for the Crane MFA and Crane 100. The average WAM (weighted average maturity) for the Crane MFA and Crane 100 was 30 (down three days) and 33 days (down four days), respectively. (See our Crane Index or craneindexes.xlsx history file for more on our averages.)

Jan 23
 

This month, MFI interviews BlackRock's Global Head of Cash Management Tom Callahan. He discusses a number of issues in the money market fund space, including the outlook for 2020, technology, ESG, European money funds and more. Our Q&A follows. (Note: The following is reprinted from the January issue of Money Fund Intelligence, which was published on Jan. 8. Contact us at info@cranedata.com to request the full issue or to subscribe. Also, for those attending Crane's Money Fund University, which takes place Thursday and Friday morning, welcome to Providence! Attendees and Crane Data subscribers may access our conference materials at the bottom of our "Content" page or our via our Money Fund University 2020 Download Center. Feel free to drop by the Providence Renaissance if you're in town!)

MFI: Give us some history. Callahan: BlackRock's Cash business is actually older than BlackRock itself. You can trace our history back to 1973 when TempFund was launched by Provident National Bank. In '95, when PNC made an investment in BlackRock, they merged their entire fixed income business, including their money funds, into BlackRock. Cash has been a core, critical part of BlackRock’s franchise since the firm was founded.

For my own history, I came to BlackRock in 2013, by way of Merrill Lynch and the New York Stock Exchange. When I joined, the Cash management industry was plagued by zero interest rates, outflows and fee waivers. Back then, BlackRock's cash management business had roughly $250 billion. Now, 5 1/2 years later, we have enjoyed terrific growth, much of it organic. As we announced in our last earnings report, in mid-2019 we crossed our long-term goal of $500 billion in total client cash management assets, and we've kept growing! It's been a great run and a lot of fun.

MFI: What are your big priorities? Callahan: Let me start with technology and then talk a little bit about LEAF. They're both absolutely critical, and I believe are indicative of the profound changes happening industry-wide right now. Competition around technology is heating up in a very healthy way. I think this was really precipitated by Money Fund Reform in 2016, when we saw $1 trillion move out of Prime funds. The cash management industry has always been a relatively commoditized business, but when essentially 80% of the assets in the industry moved into government funds, it became hyper-commoditized.

That dynamic then intersects with the longer-term trends of clients' use of portals and intermediaries -- which are taking a larger percentage of the total volume in the industry every year. I think a lot of us, certainly at BlackRock, realized that we needed a different distribution strategy. That's what led us to acquire Cachematrix in 2017. In the last 12 months, other large providers have announced new investments in their own tech platforms. So, I think it's clear that the new competitive front in cash management is technology.

We believe that what clients care most about in cash is convenience. And the way to deliver convenience to clients is through technology. These tech-driven enhancements are ultimately going to benefit clients through enhanced ease of use, improved functionality, better transparency and ultimately lower fees. More recently, we acquired the NEX Treasury platform to try to expand in the European market. We're continuing to invest enormous amounts of time, energy and resources to making sure that we stay on the cutting edge of this technology transformation that's happening in cash management.

The second transformation that I think is underway in cash management is sustainability. ESG funds are quickly moving from being interesting fringe products to the mainstream. We launched the Liquid Environmentally Aware Fund, or LEAF, very early on in the movement, in April 2019, largely in response to client demand. Since launch, the LEAF family of funds has been incredibly successful. Across the four funds (U.S. domestic, plus offshore Dollar, Sterling and Euro), we're coming up on $8 billion in assets combined. We've really seen stunning growth in such a short period of time. What we've uncovered is that bringing values-based investing to cash is resonating with investors, frankly, even more than we even expected.

We built our LEAF funds to be a no brainer. They are priced and perform nearly identically to the traditional options. So if you can buy a large, liquid, diversified money fund that is green, offers benefits in terms of sustainability, all while getting nearly the same return that you would get in a traditional cash product, we think that is an incredibly compelling value proposition. LEAF has some other features that help make this fund truly unique. A partnership with World Wildlife Fund helps support their ongoing conservation efforts and helps us make better investment decisions. We also take 5% of the revenue of the fund to buy and retire carbon offsets.... It seems like every month there are new funds announced and if we look out three or four years, ESG funds will be the default, not the exception in cash.

MFI: What are your biggest challenges? Callahan: I would say our biggest challenge, and luckily it plays to all of our strengths, is just managing scale. If you add up all of our client assets and also the funds that we manage for other BlackRock products, we're now managing over $800 billion and our yearly trading volume is measured in the tens of trillions. Doing that in an efficient, scalable way that relies on technology and doesn't expose us to any undue risk, that's our biggest challenge today.

Most of the inflows that you saw in 2019 went to the largest players. In a way, it almost appears to me that the industry is organically consolidating -- i.e., there is such a huge preference from clients for big, scaled funds that those funds are naturally attracting most of the new money. So the big are getting bigger which, fortunately, offers advantages to clients in terms of liquidity and diversity. But what it means for us as a provider is that we need to be constantly investing in our systems and our platforms to be as efficient as we can. Luckily, our global business is built on the Aladdin platform, which is the best investment technology and risk management platform in the industry.

MFI: How are you positioning the funds? Callahan: In terms of positioning of the portfolios, generally we think that the risk is to lower yields. [A] new geopolitical risk has arisen, and the market really hasn't changed its pricing in terms of Fed expectations, with only one cut currently priced in for 2020. We've seen that the Fed is willing to cut rates at any sign of an economic slowdown. We think given where we are in the business cycle and where risk assets are priced, there is a very asymmetric risk towards lower rates.

Fortunately, to help us manage through this risk, we think we have some of the best PMs in the business. Rich Mejzak is our global cash CIO and he's been here since the MLIM days. On the government fund side, Joe Markowski, Eion D'Anjou, Chris Linsky and team are fantastic. They were here through the crisis, [and] reforms in '16. [W]e are very lucky to have that steady hand in Philadelphia investing our clients' assets.

MFI: Any customer concerns? Callahan: The number one concern we hear from clients is managing their own time and bandwidth. I think since the financial crisis, the role of the corporate treasurer and the definition of what that job encompasses has expanded three-or-four-fold. Ultimately, what our corporate treasurer clients care about more than anything is convenience. They don't want to have to stress about the task of cash investing. They want it to be effortless [and] integrated with other tools ... like TMSs. They want automation. They want sweeps. They want to 'set it and forget it.' That's why we're investing in technology the way that we are and I think that's why the industry is moving so aggressively in this direction.

MFI: What about fees and waivers? Callahan: If you look across the industry, I think cash management has been more resistant to fee compression than some other sectors of the asset management industry. I think there are a couple of reasons behind that. One of them, again, is that scale in cash is just so critical. The other are the various hidden taxes money fund investors are paying currently in terms of distribution fees. Most money fund providers pay in certain distribution networks over half their management fee to their distributors, which ultimately reduces the return investors earn. I think that as technology evolves and as greater competition is created in the distribution, buying and selling of money funds, a lot of those implied fees and tolls will be reduced. That's what technology does. It eliminates fees and reliance on middlemen. So, I do think you will see distribution fees drop due to technology and then you will see money fund fees drop commensurately as well.

MFI: What about ultra-short or offshore? Callahan: 2019 was a year where every single sector you just mentioned saw record or near record inflows. Our core Government funds, our Prime funds, our LEAF funds, our SMAs, all grew across both onshore and offshore. I think the offshore story is really an incredible one. This time last year we were all in the teeth of European Money Fund Reform and there was a huge amount of uncertainty. The fact that not only did we not see outflows in our funds but we actually hit new record highs was one of the great successes of 2019. We also saw fantastic growth of our SMA book in EMEA and APAC.

We have a fund called Short Obligations, which is our U.S. Ultra-Short Bond Fund. For us, it's a high net worth product that two years ago had $200 million in assets. It crossed $3 billion last year. For high net worth clients looking to get a slightly enhanced return on their cash by accepting floating NAV and going out a few months in duration, it has proved to be a homerun product, especially in a declining yield environment. It was another really strong performer for us in 2019.

MFI: What about the future? Callahan: I think that the industry has enormous room to continue to grow. I'm very, very bullish on the future of money funds. 2019 was a spectacular year for the industry and it was a terrific double-digit growth year for BlackRock's cash management business. It's not a surprise when you look at the shape of the yield curve, overall volatility in the markets, M&A activity, etc., all of those things kind of conspired together to create an ideal environment. Clients could earn, for much of 2019, 2.25-2.5% in a money fund, while the 10-year Treasury was yielding 1.60%.

I think for a lot of investors that was a no brainer. It was a really positive year for the industry. As great as 2019 was, I believe there is room for even more growth in 2020. You could make an argument that the cash management industry could double again in the coming years, which is exciting.

I firmly believe that transformative technology is going to be that growth accelerant. It's going to make money market funds cheaper, easier to use and more transparent. It's going to diminish or eliminate all the headaches of account setups and complexity around buying and selling of money funds. The lesson of the digital economy is when you make things easier to buy and sell, people buy and sell more of them.

Jan 14
 

Below, we reprint the article, "Top Money Funds of 2019; 11th Annual MFI Awards," from the January edition of our Money Fund Intelligence.... In this issue, we recognize the top-performing money funds, ranked by total returns, for calendar year 2019, as well as the top funds for the past 5-year and 10-year periods. We present the funds below with our annual Money Fund Intelligence Awards. These are given to the No. 1-ranked funds based on 1-year, 5-year and 10-year returns, through Dec. 31, 2019, in each of our major fund categories -- Prime Institutional, Government Institutional, Treasury Institutional, Prime Retail, Government Retail, Treasury Retail and Tax‐Exempt.

The Top-Performing Prime Institutional fund (and fund overall) was BlackRock Cash Inst MMF SL (BRC01), which returned 2.49% (with 125 funds total), but DWS ESG Liquidity Inst (ESGXX) was first if restricted funds are excluded with a return of 2.41%. For Prime Retail funds, Vanguard Variable Insurance MM Fund (VAN03) ranked No. 1 (2.32%, 81 funds total), but Fidelity Inv MM: MM Port Inst (FNSXX) had the best return in 2019 (2.30%) if restricted funds are excluded.

The Top‐Performing Government Institutional funds in 2019 were Fidelity Flex Govt Money Market Fund (FLGXX) and Fidelity Series Govt Money Market Fund (FGNXX), which both returned 2.27% (144 funds total). AIG Govt MMF Class A (SMAXX) and American Century US Govt MM G (AGGXX) were the Top Government Retail funds over 1‐year with returns of 2.25% (155 funds total).

BlackRock Select Treas Strategies Inst (MLSXX) ranked No. 1 in the Treasury Institutional class with a return of 2.39% (134 funds total). Federated Trust for US Treas Obl IS (TTOXX) was No. 1 among Treasury Retail funds, returning 2.05% (72 funds total).

Top Funds over Past Five Years. For the 5‐year period through Dec. 31, 2019, DWS ESG Liquidity Cap (ESIXX) took top honors for the best performing Prime Institutional money fund with a return of 1.31% (108 funds total). Fidelity Inv MM: MM Port Inst (FNSXX) ranked No. 1 among Prime Retail with an annualized return of 1.23% (62 funds total).

Dreyfus Inst Pref Govt Plus MF (DRF03) ranked No. 1 among Govt Institutional funds with a return of 1.06% (103 funds total), while Vanguard Federal Money Mkt Fund (VMFXX) ranked No. 1 among Govt Retail funds over the past 5 years with a return of 1.01% (137 funds total). BlackRock Select Treas Strategies Inst (MLSXX) ranked No. 1 in 5‐year performance among Treasury Inst money funds with a return of 1.00% (117 funds total). Federated Trust for US Treas Obl IS (TTOXX) ranked No. 1 among Treasury Retail funds with a return of 0.94% (66 funds total).

Best Money Funds of the Decade. The highest performer of the past 10 years and No. 1 among Prime Inst MMFs was BlackRock Cash Inst MMF SL (BRC01) or Morgan Stanley Inst Liq ESG MMP Inst (MPUXX) if you exclude restricted funds. They returned 0.74% and 0.68%, respectively (97 funds total). Fidelity Inv MM: MM Port Inst (FNSXX), which returned 0.71% (62 funds total), was best among Prime Retail.

UBS Liquid Assets Govt Fund (UBS02), which returned 0.60% (99 funds total), (No. 1 among Govt Inst funds); Vanguard Federal Money Mkt Fund (VMFXX) ranked No. 1 among Govt Retail funds, returning 0.51% (132 funds total). BlackRock Select Treas Strategies Inst (MLSXX) returned the most among Treasury Inst funds over the past 10 years at 0.56% (104 funds total). Federated Trust for US Treas Obl IS (TTOXX) ranked No. 1 among Treasury Retail MMFs at 0.47% (104 funds total).

Top Tax‐Exempt Funds. We're also giving out awards for the best‐performing Tax‐Exempt money funds. Fidelity SAI Muni Money Market Fund (FMQXX) ranked No. 1 for the 1‐year period ended Dec. 31, 2019, with a return of 1.55% (88 funds total). Over the last 5 years, Federated Municipal Obligs WS (MOFXX) was the top performer with a return of 0.81% (83 funds total). BMO Tax Free MMF Premier (MFIXX) was the top‐ranked fund for the 10‐year period with a return of 0.48% (78 funds total).

See the MFI Award Winner listings on page 6 of the MFI newsletter, and see our latest MFI XLS for more detailed rankings. The tables on page 6 show the No. 1 ranked money fund for each category based on 1‐year, 5‐year, and 10‐year annualized total returns.