As you've hopefully been reading in www.CraneData.com's daily "News", we have reported on all of the news that has come to our attention over the past several months from companies announcing their intentions post-money market reform. Of the 20 largest money fund complexes, half have issued updates, including the four largest -- Fidelity, JP Morgan, BlackRock, and Federated. Note that through all of the announced changes, every statement to date has pledged to offer all types of funds. Here, we recap all of the statements, and dates they were announced, that have happened so far. (Major parts of this summary were originally printed in our May Money Fund Intelligence. A PDF version of the MFI story, "Schwab and Latest Fund Co. Changes; SEC Answers FAQs" may be accessed here.) We also look at a new release from Fitch Ratings called "Post-MMF Reform Cash Management Landscape Takes Shape," which looks at how the money market environment is shifting.
As we wrote in our May MFI, Fidelity (our "News" originally appeared on 2/2/14) will shift about $130B from Prime Retail to Government, including the world's largest MMF, Fidelity Cash Reserves, and will merge MMFs with similar strategies. The company has not yet commented on plans for its Institutional MMFs.
JP Morgan (2/23) said JP Morgan Prime, the largest Prime Institutional fund, will remain as such and will be subject to a Floating NAV, while JP Morgan Liquid Assets will shift to Retail. JPM's release is one of the few to detail which funds will be retail and which will be institutional among its lineup.
BlackRock (4/7) said its largest MMF, TempFund, will remain a Prime Institutional fund, subject to floating NAV. The $2.4B TempCash will remain Prime Institutional, but will be converted to a 7-day maximum maturity fund while some Muni funds will also be converted to 7-day funds. Also, several Prime Retail funds will be converted to Govt funds.
Federated (2/20) will convert several of its Prime Institutional Funds to 60-day maximum maturity funds. Details on which funds or amount of assets converted have not been released. The company also continues to mention private funds and offshore funds as options.
Goldman Sachs (1/22) said it will start complying with the new definition of Government MMFs early, converting 4 Government MMFs to the 99.5% requirement. It also said it won't have fees and gates on its government funds. Dreyfus (3/11) is considering offering 60-day maximum maturity Prime Institutional funds. Dreyfus will offer all types of money funds and same-day settlement on floating NAV MMFs.
Charles Schwab (5/4) will not implement fees and gates on its government, and will have a range of options, including Floating NAV funds. A spokesperson for Schwab tells Crane Data, "We are committed to providing our clients a wide array of choices in how they manage their portfolios. Clients in Prime or Municipal MMFs who will be eligible for "Retail" funds and who continue to meet Schwab's MMF Sweep Feature criteria will stay in the Cash Feature they have selected.... You should expect to see filings designed to ensure all of our existing Prime and Municipal funds remain "Retail," as well as filings for new "Institutional" funds, as appropriate."
Western (4/8) will adapt funds to new requirements, but won't have fees and gates on Government funds. It has also launched two Short-Term Bond Funds. Invesco (4/20) won't implement fees and gates on its Government Funds. First American (4/1) won't impose fees and gates on Government Funds.
No fund groups have announced plans to implement optional emergency fees and gates for Government funds to date. Vanguard, Morgan Stanley, Wells Fargo (though see last month's MFI "Profile"), Northern (watch for a "profile" next month in MFI), SSgA, and BofA have yet to detail plans publicly.
Fitch's new report takes a broader view of the changes. It says, "The post-money fund reform cash management landscape in the U.S. is taking shape as fund managers unveil adaptation plans, according to Fitch Ratings. The moves hint at a sizable shift into government funds, a wound-down institutional prime space, and growth in alternative products such as separately managed accounts, private money funds, and short-term bond funds. Managers responsible for over $1.4 trillion, or 59% of U.S. money market fund assets, have provided guidance thus far."
It continues, "As managers announce plans in response to reform an overriding theme appears to be more options for investors. Two managers announced plans to convert over $100 billion of prime retail funds into government funds to maintain a stable NAV and avoid fees and gates. Asset managers also said they will introduce new 'short-maturity' institutional prime money funds, which will only buy securities maturing in less than 60 days to reduce the likelihood of, although not eliminate, NAV volatility. BlackRock went further, committing to establish a 7-day maturity institutional prime fund, which could potentially avoid triggering the new fees and gates provision. On the other hand, all managers also committed to maintaining existing large institutional prime funds (which will have floating NAV in 2016), and all also noted that they will opt out of the fees and gates feature that is optional for government funds."
Further, Fitch writes, "While the industry largely expects assets to shift from prime to government funds due to reform, so far flows have been muted. Institutional government fund assets are up 8% since reform was enacted in July 2014, but institutional prime funds are also up 2%. Seasonal factors affect money fund flows, so it is hard to tell if the data is indicative of reform-related flows towards government funds, which will likely intensify closer to the implementation date for floating NAV and fees and gates in October 2016. Anecdotally Fitch is aware that a small number of institutional money fund clients have switched from prime to government funds in response to reform. The increased demand for government funds may bump against shortages in supply and, consequently, wider spreads between government and prime funds."
Finally, Fitch reports, "[A]pproximately 50 EU banks and banking groups will face long-term rating pressures as a result of Fitch's reduced sovereign-support assumptions, which may impact the banks' short-term ratings during 2Q15. Many prime money funds have exposures to these banks and may reassess their positioning ahead of rating actions." It continues, "European banks susceptible to downgrades currently represent an average of 3.3% of U.S. prime money fund assets, but exposures vary across funds and issuers as the charts on the right show. The exposure of individual funds to this group of banks ranges from 0% to 29% but is concentrated in very short-dated securities, primarily under 1 month, and in many cases overnight."
