Bloomberg published an article titled, "Money-Market Funds Stay in Vogue Even as Reforms Go Into Effect," which recapped the latest changes to the Prime Institutional money fund space. They write, "Money-market funds are attracting record amounts of cash, even as a regulatory overhaul pins the industry with costly mandatory fees. The US Securities and Exchange Commission approved measures last year designed to make the $6.42 trillion industry more transparent and prevent investors from yanking money from such funds during market volatility or financial stress like in March 2020. The final piece of the reform requiring fund managers to impose mandatory liquidity fees went into effect on Wednesday."
The piece explains, "While such a charge threatened to scare off investments, high yields have continued to lure money -- leaving most of the largest institutional prime funds intact. There were, however, at least a dozen institutional prime funds that shut down or converted to government vehicles this year." (Note: The article includes a table with the changes, which looks suspiciously like our "bigsort2" file, though they don't list a source. Let us know if you'd like to see our table though!)
They quote Bank of America's Mark Cabana, "The most striking to me is how smooth it appears to have gone. The total size of prime institutional funds decreased but it's quite remarkable how little market impact it had, especially if you compare this to 2016. This is essentially a whimper, not even leaving as much of a mark."
Bloomberg also quotes John Donohue, head of global liquidity at JPMorgan Asset Management, "This time it's been much much more settled. We see clients in prime funds willing to stay through reform and changes."
They tell us, "Ahead of the new mandate, JPMorgan Asset Management on Aug. 1 adjusted the parameters of its institutional prime fund to a one-strike net asset value, that is, pricing shares once a day and earlier so they have more time to calculate any potential fees to meet the new rule. Other operational changes were instituted to track redemptions throughout the day, according to Donohue. JPMorgan's prime money-market fund is one of the largest in the industry growing to nearly $86 billion of assets under management as of Sept. 30, from just roughly $19 billion in October 2016."
The piece adds, "Money-market funds have seen nearly $1.87 trillion of inflows since the Fed started its aggressive interest-rate hiking cycle in March 2022, eventually pushing rates well over 5% and making cash an attractive asset class. Although the central bank has begun reducing rates ... investors continue piling into money-market funds given that they tend to be slower to pass the lower rates on to investors."
Mutual fund news source ignites also writes about shift in, "Prime Institutional Funds: 'Juice Isn't Worth the Squeeze'." They comment, "Asset managers of all sizes have dissolved their prime institutional funds ahead of Wednesday's implementation date of the Securities and Exchange Commission's new liquidity and fee requirements, compliance professionals said. Just a handful of firms have opted to continue to offer the funds, with most deciding that the compliance challenges, such as daily portfolio pricing and redemption fee calculations, are too burdensome."
They explain, "The December 2021 proposal was a response to the stress that money market funds faced at the start of the Covid-19 pandemic, when investors rapidly pulled more than $130 billion from those funds in the month of March 2020, Ignites previously reported. The proposal ultimately passed with a 3-2 vote by the SEC commissioners, with commissioner Hester Peirce asking if the agency was 'trying to kill' the product before that vote. The reforms going into effect on Wednesday include a requirement for funds to charge a liquidity fee when daily net redemptions exceed 5% of net assets [and when prices move noticeably]."
Amy Lynch of FrontLine Compliance tells ignites, "It's not a cost-effective product to really offer unless you have made a huge presence in the market and have a certain amount of market share. It's going to be one of those scenarios where the bigger players are going to benefit as the smaller players get out of the market."
They state, "American Funds, which at one point had the largest prime fund on the market, filed to convert its $144 billion central cash fund to a government money market fund in February 2024.... Vanguard also liquidated its prime funds, converting its last prime institutional fund into a money market fund this past March. Other firms, such as Allspring, BlackRock, Schwab and UBS, have also converted their prime institutional funds, according to Peter Crane, president of Crane Data."
The article says, "More than $355 billion in prime institutional funds assets had exited the market as of Aug. 31, according to Crane Data. At least 19 prime funds, which constituted 42.8% of all available products in the category, have been liquidated or converted in 2024, the data showed. Despite the exodus, total money fund assets are at an all-time high, and the products remain attractive to both investors and the providers willing to take on the compliance challenges."
They too quote JPMAM's John Donohue, "Prime money market funds are already floating NAV funds, unlike a government or a Treasury market fund, so the clients in these funds are already comfortable with floating NAV. They understand the product, and they are happy to look at a product that has a higher yield."
Fred Teufel, a director at Vigilant Compliance, says to ignites, "The juice just isn't worth the squeeze. The rules and requirements basically outweigh the benefits from using hourly pricing in the marketplace."
They also quote Dechert's Stephen Cohen, "Maintaining the products under the new rules is 'time consuming and costly' ... There's never been a system where you have to measure your net redemptions at the end of the day and then run in the background a calculation to determine liquidity costs for liquidating a pro rata share of your portfolio."
