American Beacon, the 55th largest money fund manager (out of 65 tracked by Crane Data), is "going government," liquidating its $165 million "prime" American Beacon Money Market Select Fund while continuing to offer its $242 million American Beacon U. S. Government Money Market Select Fund. The Jan. 20 Prospectus Supplement for American Beacon Money Market Select Fund says, "On January 11, 2016, the Board of Trustees (the "Board") of American Beacon Select Funds approved a plan to liquidate and terminate the American Beacon Money Market Select Fund (the "Fund"), upon the recommendation of American Beacon Advisors, Inc. ("Manager"), the Fund's investment manager." We also review last week's Money Fund University, Crane Data's "basic training" event, which set a record for attendance last week in Boston, below. (Note: The Conference Binder and Powerpoints are now available to Attendees and Crane Data Subscribers via our "Content Center".)
American Beacon is the 53rd fund and 24th fund family to "go government" with some or all of its money market funds. A total of $172.4 billion has already converted to date, and $91.6 billion more is scheduled to switch from "Prime" to "Government" (the total declared to date is $264.0 billion). American Beacon's Select MM's filing explains, "In anticipation of the liquidation, effective immediately, the Fund is closed to new shareholders. The Fund will distribute cash pro rata to all remaining shareholders who have not previously redeemed or exchanged all of their shares on or about March 31, 2016 (the "Liquidation Date"). These distributions may be taxable events. Once the distribution is complete, the Fund will terminate."
It adds, "Please note that you may be eligible to exchange your shares of the Fund at net asset value at any time prior to the Liquidation Date for shares of the American Beacon U. S. Government Money Market Select Fund. You also may redeem your shares of the Fund at any time prior to the Liquidation Date. No sales charges, redemption or termination fees will be imposed in connection with such exchanges and redemptions. In general, exchanges and redemptions are taxable events for shareholders."
In other news, Crane's 6th annual Money Fund University conference convened last week in Boston with a record 125 people in attendance. The basic training event, targeted at those new to the money market fund industry, featured primers on interest rates, rule 2a-7, various money market securities, the Federal Reserve, ratings, portfolio management, and money market fund reforms. Conference host Peter Crane, President of Crane Data, kicked things off with a session called, "History and Current State of Money Funds." Crane said money market fund assets have been remarkably stable, gaining slightly each of the past four years. "After six years of 0% yield and radical regulatory change, if you are still in a money market fund, you're not going anywhere."
Crane continued, saying the migration out of Prime funds ultimately won't be as dramatic as many expect it to be due to the yield advantage they will have over Government funds in a rising rate environment. That sentiment was echoed by other as well. He also expects inflows from the banking sector. "I believe you are going to hear a giant sucking sound out of the banking sector once money fund yields get to 100 basis points," he commented. Until then, much change is anticipated in the MMF space as reforms go into effect on October 14, 2016. Fund managers, not quite sure which way the money will flow, are ready for everything. Crane added, "A lot of people are getting buckets out because they don't know where its going to rain."
In a session on the "Federal Reserve and Money Markets," Bank of America Merrill Lynch Strategist Mark Cabana talked about the path of interest rates. While the Fed is estimating 4 rate hikes in 2016, the market is pricing in only one rate hike this year and just 3.5 over the next three years, given economic uncertainty. "The market is telling them it will be a lot more gradual than Fed projections," said Cabana.
Barclays Joe Abate discussed the supply and demand outlook for 2016. Supply pressures should abate in 2016. Treasury bill issuance is expected to increase by $125 billion or more, and the essentially unlimited Overnight Reverse Repo Program, capped at $2 trillion, will ease the pressure from increased demand in the Government sector.
In the afternoon session, "Instruments of the Money Markets Intro," JP Morgan Securities' Teresa Ho said they expect to see $400 billion flow out of Prime funds into Government funds, this in addition to the over $260 billion in Prime funds already scheduled to convert to Government funds. Federated Senior Portfolio Manager Sue Hill said in the session on "Treasury and Government Securities," that she believes the government sector, with $6 trillion in available securities, plus the Fed ON RRP, will have enough supply to handle the migration. Day 1 closed with a session on "Credit Analysis and Portfolio Management," featuring SSgA Senior PM Todd Bean and Peter Hajjar, Global Head of Credit Research. The two walked the audience through the process of security selection and portfolio management.
Day 2 (Friday) focused almost entirely on regulatory issues. Attorney John Hunt, Partner, Nutter, McClennen & Fish, discussed "Money Fund Regulations: 2a-7 Basics and History," while Jack Murphy, Partner, Dechert, and Stephen Keen, Senior Counsel, Perkins Coie, discussed "Outstanding Issues with MMF Reforms." Murphy and Keen led attendees through the various regulatory changes coming up in April and October of 2016. Keen said that while initially the thinking was that the Floating NAV provision would be the most worrisome for clients, it's now clear that clients are more concerned about fees and gates. On the fees and gates provision Keen said, "The amount of redemptions you'd have to see to get down to 10% liquidity would be stupendous." The day ended with a session from Peter Crane and Jonathan Carlson, BofA Global Capital Management on "Offshore MMFs, SMAs, and Ultra-Short Bonds."
The Conference Binder and Powerpoints for MFU is available to Crane Data subscribers via our "Content Center. (Page down to the bottom for "Conference Materials".) Note that next year's Money Fund University is tentatively scheduled for Jan. 19-20, 2017, in Jersey City, NJ. Also, Crane Data's next conference event is our "big show," Money Fund Symposium, which will be held June 22-24, 2016, at the Philadelphia Marriott (registration is now live for this), and our next European Money Fund Symposium will be held Sept. 20-21, 2016, at the London Tower Bridge Hilton.
