The ICI released its latest "Market Mutual Fund Assets" report yesterday, which showed money fund assets declining for the second straight week in 2014. Assets clung to the $2.7 trillion level, but they've declined by $18 billion since the start of the year after climbing during December and throughout the second half of 2013. ICI's release says, "Total money market mutual fund assets decreased by $14.02 billion to $2.701 trillion for the week ending Wednesday, January 15, the Investment Company Institute reported today. Taxable government funds increased by $3.53 billion, taxable non-government funds decreased by $15.77 billion, and tax-exempt funds decreased by $1.79 billion." During 2013, money fund assets increased by $14 billion, or 0.5%, after rising incrementally in 2012 too (up $10 billion, or 0.4%).
The release continues, "Assets of retail money market funds decreased by $6.27 billion to $925.07 billion. Taxable government money market fund assets in the retail category decreased by $1.40 billion to $198.26 billion, taxable non-government money market fund assets decreased by $3.37 billion to $529.87 billion, and tax-exempt fund assets decreased by $1.50 billion to $196.94 billion." Retail money funds account for 34.3% of all money fund assets with non-govt (Prime) retail MMFs accounting for 19.6% of total assets, government retail MMFs accounting for 7.3%, and tax exempt retail 7.3%.
ICI adds, "Assets of institutional money market funds decreased by $7.76 billion to $1.775 trillion. Among institutional funds, taxable government money market fund assets increased by $4.93 billion to $752.42 billion, taxable non-government money market fund assets decreased by $12.40 billion to $947.68 billion, and tax-exempt fund assets decreased by $290 million to $75.36 billion." Institutional money funds account for 65.7% of all money fund assets with non-govt (Prime) institutional MMFs accounting for 35.1% of total assets, government inst MMFs accounting for 27.9%, and tax exempt inst 2.8%.
In other news, BlackRock CEO Larry Fink hosted the company's Q4 conference call (see the transcript from Seeking Alpha) yesterday, but the discussion barely even mentioned money market funds. Fink commented, "The interest rate environment led many liquidity-oriented investors to sell long-duration assets, which made up more than 70% of our iShares fixed income book. As a result, we saw more than $7 billion of fixed income outflows this year, a sizable reversal for the iSharesBond business from a strong 2012. Helping to offset the pressure on the long-duration side, our short-duration fixed income suite gathered nearly $9 billion this year, led by our floating rate bond fund. BlackRock is focused on strengthening our offerings for clients, seeking protection in a rising rate environment, by offering expanding product set that includes 4 new U.S. funds, including short duration versions of our flagship high-yield and our investment-grade credit products and short maturity and liquidity income funds."
Later Fink was asked about SIFIs, IOSCO and the FSB. He comments, "Well, I thought the IOSCO Financial Stability Board's paper on a framework was a good framework. We actually agree with their framework.... Their framework really spoke about products and how they need to look at products. This is something that we've been discussing here in the United States. As I've said repeatedly, it was not the largest institutions [in] asset management that created any of the real problems. With Long-Term Capital in the late '90s, that would not have been a large-scale platform. You had Bear Stearns Asset Management with a leveraged mortgage fund that created the beginning of the crisis here in the United States. And the money market crisis was created by the #9 largest money market fund that was reaching for yield, which plays into this whole concept. As you look at where risk may lie, risk is going to be lying in products. So we need to make sure that products are going to be analyzed in making sure people understand the systemic risk around products and the leverage associated with those products. Clearly, I think the IOSCO plan [indicated that plain] vanilla mutual funds probably don't create those types of systemic risks."
Finally, Fink says on the bubble in bonds, "I have always believed Retail has overly invested in fixed income. I think this is one of the tragedies that we have in America today, that so many individual investors have been so panicked by the media, by the economic conditions, by job conditions. Much of it is reasonably understood. And as a result, so many individuals have kept their money safe as a thought and overinvested in fixed income as a safe haven. Well, obviously, if you believe interest rates are going up, it's not a safe place to be anymore. [But] you're going to have long-term trends that are going to be constructive for fixed income. So despite the views that we may have systematically higher rates in the future, it is going to produce more demand for fixed income. And this is one of the reasons why we had such a large credit rally and why we believe that will persist. And this is why we have not been totally afraid of the realities of ... the changing realities of the Federal Reserve and the manner in which they are handling their monetary policy."
