Wells Fargo Securities writes about last week's Crane's Money Fund University in the Jan. 25 issue of its "Daily Short Stuff" commentary. Co-author Vanessa Hubbard was one of the speakers at MFU, presenting with Bank Hapaolim Treasurer Marian Trano on "CDs, TDs, and Bank Debt." Wells writes, "Last week the Crane Money Fund University in Boston topped its previous record in terms of attendance. We are pleased with the attendance record, and believe that it shows a continued commitment to the space as money market fund advisors send junior analysts to bone up on the instruments available in the money markets. In his comments on the "State of the Money Fund Industry," Crane noted that the migration out of prime funds is not likely to be as dramatic as many expect it to be due to the yield advantage [prime funds] will have over government funds in a rising rate environment. Currently, the 7-day yield on the Crane prime institutional index is 21 basis points, versus 8 basis points on the government index and 5 basis points on the Treasury index. This spread will likely grow as we believe that many money fund advisors are still subsidizing their operations, and once all funds get back to full fees, the spreads will widen even further. Nevertheless, while Mr. Crane believes the outflows are likely to be lower than expected, money fund complexes continue to convert from prime to government. Crane noted that the total asset value announced for conversion is currently $264 billion, with more than $172 billion of that already converted. Mr. Crane noted that he believes there will be massive outflows from bank deposit products once money fund yields hit 100 basis points. The reasoning is that given the bank regulatory environment and the amount that banks are already holding in terms of "excess" deposits, it is unlikely that they will be as competitive with non-operating deposit rates as they have been in the past, which will likely create an even wider dispersion between fund yields and deposit yields. However, whether these deposits move into government or prime products is difficult to say. We could just as easily see the assets flow into government funds, and simply accept a lower yield than a prime fund. The regulatory stumbling blocks that we see amongst money market clients remain the same, specifically the liquidity issues associated with gates and fees, and the operational issues associated with the floating NAV. While most cite one or the other regulatory change as the main concern, it is rare amongst the clients we interact with that neither is an issue." In other news, the UK-based Investment Association, released 2015 year-end statistics. It says, "Money Market funds saw net retail sales of L591 million in 2015, their highest on record and up from L63 million in 2014." (The U.K. money fund market is tiny with just over $10 billion in assets as of Q3'15, according to ICI.)
