Morgan Stanley Investment Management, the 9th largest money market fund manager with $132.6 billion in assets, provides some details on its post-reform lineup of Institutional and Government money funds in a recent Prospectus filing. It designates the $19.9 billion Prime Portfolio, the Money Market Portfolio, and the $80 million Tax-Exempt Portfolio as "Institutional". It also designates four portfolios as "Government" -- MS Government Portfolio, Government Securities Portfolio, Treasury Portfolio, and Treasury Securities Portfolio. This latest filing did not discuss plans for MS Liquid Assets or any Retail funds <b:>`_. Morgan Stanley also released a new commentary, entitled, "Global Liquidity Solutions: Institutional Government & Treasury Money Market Funds." We discuss these below, and we also review some new BlackRock FFI changes.
The updated March 1 Prospectus for the "Morgan Stanley Institutional Liquidity Funds Institutional Class Portfolios" includes Prime Portfolio, Government Portfolio, Government Securities Portfolio, Treasury Portfolio, Treasury Securities Portfolio, and Tax-Exempt Portfolio. Within the description of the Prime Portfolio, under the header "Money Market Fund Regulations," it says, "The SEC recently adopted changes to the rules that govern money market funds. The Portfolio intends to operate as an "institutional money market fund," which will require the Portfolio to have a floating NAV, rounded to the fourth decimal place, effective October 2016. Also effective October 2016, the Portfolio will be permitted to impose a liquidity fee on redemptions or temporarily restrict redemptions if weekly liquid assets fall below required regulatory thresholds. These changes may affect the investment strategies, performance and operating expenses of the Portfolio."
Under the Tax-Exempt Portfolio, the language is similar, saying, "The Portfolio intends to operate as an "institutional money market fund," which will require the Portfolio to have a floating NAV, rounded to the fourth decimal place, effective October 2016. Also effective October 2016, the Portfolio will be permitted to impose a liquidity fee on redemptions or temporarily restrict redemptions if weekly liquid assets fall below required regulatory thresholds." Morgan Stanley joins only a handful of money fund managers, including BlackRock, Dreyfus, Federated, Invesco and Wells Fargo, that will offer Tax Exempt Institutional MMFs. Shockingly, the two largest managers, Fidelity and JPMorgan, will not offer T-E Inst funds.
The description for the other four Morgan Stanley portfolios -- Government, Govt Securities, Treasury, and Treasury Securities -- states, "The Portfolio intends to operate as a "government money market fund," which allows the Portfolio to continue to seek a stable NAV. The Portfolio will also not impose a liquidity fee or temporarily suspend redemptions in the event that the Portfolio's weekly liquid assets fall below specified regulatory thresholds."
Morgan Stanley's commentary, "Global Liquidity Solutions: Institutional Government & Treasury Money Market Funds" says, "The Morgan Stanley Institutional Liquidity Funds Government and Treasury Portfolios are managed with the conservative natures of their shareholders in mind.... [T]he Morgan Stanley Government and Treasury fund positioning and scale has resonated well with clients as the funds' asset growth have both consistently outperformed the industry since 2011. This can be attributed to several factors including our defensive portfolio management approach, our tailored resources and expertise, and our strategic focus on building up our government and treasury money market funds in anticipation of money market regulatory reform."
It continues, "Early on we identified the direction of money market fund reform was suggesting a regulator and investor preference toward government and treasury funds. We therefore placed significant emphasis on building scale in this category of money market funds by positioning our funds in a manner to be most attractive to investors. We believe that scale is important because it allows for greater accessibility coupled with greater stability for a fund."
Morgan Stanley explains, "Government and treasury money market funds play a significant role in today's $2.8 trillion money fund industry, representing nearly half of total industry assets. When safety and liquidity are the most critical investment objectives, government and treasury funds may offer an attractive investment option. In some cases, selection of a government or treasury fund is dictated by policy mandate; in others, it stems simply from a desire to take a more defensive path."
Finally, it says, "The amended money market fund rules to be implemented in October 2016 will not require these funds to float their net asset value (NAV) nor have the potential for liquidity fees or redemption gates, rendering them an attractive alternative for some current Prime fund investors. Since safety is the highest priority, for some investors, a government or treasury fund's yield may be a secondary consideration. Nonetheless, investors have a natural desire to maximize returns within the parameters of their risk profiles."
In other news, BlackRock filed to close the FFI Government (MLGXX) and FFI Treasury (MLTXX) funds to share purchases. They say, "On February 18, 2016, the Board of Trustees of Funds For Institutions Series on behalf of its series, FFI Government Fund and FFI Treasury Fund approved a proposal to close each Fund to share purchases. Accordingly, effective at the close of business on September 1, 2016, each Fund will no longer accept purchase orders. Shareholders may continue to redeem their Fund shares at any time."
Also, BlackRock filed with the SEC to change the name of BlackRock Government Institutional and BlackRock Select Government Institutional funds and to turn these funds into Treasury and Fed Repo funds. (Goldman was the first to launch a Treasury and Fed Repo fund -- see our July 30, 2015 News, "Goldman Sachs to Launch New Prime Retail, Treasury Fed RRP Funds.") The filing says, "The Board of Trustees of Funds For Institutions Series, on behalf of each Fund, recently approved certain changes to the principal investment strategies of the Funds in order to restrict each Fund's eligible investments as described below. Each Fund would continue to meet the definition of a "government money market fund" under Rule 2a-7 under the Investment Company Act of 1940, as amended. The Board has chosen not to subject the Funds to discretionary or default liquidity fees or temporary suspensions of redemptions due to declines in a Fund's weekly liquid assets."
They write, "In connection with such changes, the Board also approved a change in the name of each Fund and the master portfolio corresponding to each Fund. These changes will become effective May 2, 2016. Investors should review carefully the specific changes to the prospectus of the Funds, which are detailed below. Accordingly, effective May 2, 2016, the Funds' prospectus is amended as follows: BlackRock Government Institutional Fund is renamed "BlackRock Treasury Strategies Institutional Fund"; BlackRock Select Government Institutional Fund is renamed "BlackRock Select Treasury Strategies Institutional Fund"; and Master Government Institutional Portfolio is renamed "Master Treasury Strategies Institutional Portfolio."
Finally, it explains, "BlackRock Treasury Strategies Institutional Fund will invest 100% of its total assets in cash, U.S. Treasury bills, notes and other obligations issued or guaranteed as to principal and interest by the U.S. Treasury, and repurchase agreements with the Federal Reserve Bank of New York secured by U.S. Treasury obligations. The Fund invests in securities maturing in 397 days (13 months) or less [and] will have a dollar-weighted average maturity of 60 days or less and a dollar-weighted average life of 120 days or less.... The Fund is a "feeder" fund that invests all of its assets in Master Treasury Strategies Institutional Portfolio.... All investments are made at the Treasury Strategies Institutional Portfolio level." (The Investment Strategy of the Select Treasury Strategies Inst fund is the same.)
