Money fund assets jumped for the 4th week in a row and Prime MMFs rose for the 9th week straight, we learned from the Investment Company Institute's latest "Money Market Fund Assets" report. Government money funds continued their rebound, also jumping for the fourth week in a row, after they showed outflows during most of the first half of the year. Prime MMFs rose for the 17th week in the past 19 (up $37.0%, or 9.3%), and they've now increased by $56.6 billion, or 15.0%, year-to-date. We review the latest asset flows below, and we also look at a recent comment letter from BlackRock on ESMA's Consultation Paper on pending EU Money Market Fund Regulations.
ICI writes, "Total money market fund assets increased by $12.61 billion to $2.71 trillion for the week ended Wednesday, August 16, the Investment Company Institute reported today. Among taxable money market funds, government funds increased by $9.26 billion and prime funds increased by $3.36 billion. Tax-exempt money market funds decreased by $11 million." Total Government MMF assets, which include Treasury funds too, stand at $2.141 trillion (79.1% of all money funds), while Total Prime MMFs stand at $434.2 billion (16.0%). Tax Exempt MMFs total $130.7 billion, or 4.8%.
They explain, "Assets of retail money market funds increased by $7.07 billion to $969.11 billion. Among retail funds, government money market fund assets increased by $5.93 billion to $588.06 billion, prime money market fund assets increased by $1.48 billion to $256.52 billion, and tax-exempt fund assets decreased by $339 million to $124.53 billion." Retail assets account for over a third of total assets, or 35.8%, and Government Retail assets make up 60.7% of all Retail MMFs.
ICI's release adds, "Assets of institutional money market funds increased by $5.54 billion to $1.74 trillion. Among institutional funds, government money market fund assets increased by $3.34 billion to $1.55 trillion, prime money market fund assets increased by $1.88 billion to $177.65 billion, and tax-exempt fund assets increased by $327 million to $6.20 billion." Institutional assets account for 64.2% of all MMF assets, with Government Inst assets making up 89.4% of all Institutional MMFs.
It explains, "ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website." Note: Crane Data also publishes a daily money fund assets series via our Money Fund Intelligence Daily product, and a monthly asset series via our MFI XLS.
In other news, BlackRock replied to the European Securities and Markets Authority's recent technical paper on European MMF Reforms with a letter entitled, "Re: Consultation Paper on Draft technical advice, implementing technical standards and guidelines under the MMF regulation." They give ESMA feedback on "share destruction," reverse repos and stress testing. (See our May 30 News, "`ESMA Publishes Consultation on European MMF Regs; Fitch on European.")
They write, "BlackRock is one of the world's leading asset and risk management firms, and is a global leader in the cash management business. In Europe, we manage over E100 billion in cash portfolios on behalf of a wide range of companies and other investors. BlackRock remains supportive of ESMA's efforts to bring additional resiliency to the MMF sector via the introduction of L2 rules and we look forward to continue to work with ESMA towards that aim. We welcome the opportunity to comment on ESMA's Consultation Paper (CP) on the Level 2 (L2) measures for the EU Money Market Fund Regulation (MMFR)."
BlackRock's letter continues, "We have engaged with policymakers at the global and European levels with regard to Money Market Fund (MMF) reform over recent years, and look forward to continuing the dialogue towards the aim of finalising the full suite of rule changes for MMFs. We share the aim of policymakers to ensure that there are appropriate measures in place to promote MMF resiliency and preserve investor utility. BlackRock has worked with a range of trade associations on their responses to this consultation -- amongst others, the Institutional Money Market Funds Association (IMMFA), European Fund and Asset Management Association (EFAMA), and IrishFunds -- and we support the collective input from their submissions. However, in addition, we would like to highlight three specific areas which are of particular importance to us (below)."
On the topic of "Share destruction," they comment, "The statement within the reporting section that ESMA understands the Regulation to prohibit share destruction (line 186) is troubling. We do not share the interpretation of the Level 1 text that the practice of 'reverse distribution' is prohibited by the Regulation. All funds create and destroy shares as part of normal subscription and redemption processes, and we consider it impractical that the Regulation should prohibit such a practice. However, we expect that this comment is intended to refer more specifically to 'reverse distribution', which has become a relatively common practice amongst many European Constant-NAV (CNAV) funds to deal with the challenges of negative interest rates, and involves the destruction of shares to account for the negative yield (not to account for mark-to-market fluctuations of the portfolio)."
The letter tells us, "While there are of course no additional rules being proposed with regard to share destruction within this consultation, or indeed, within the Level 2 rulemaking process itself, nevertheless, we find the statement in the CP to be concerning. We already anticipate that the considerable implementation process will require much of the transition period for existing funds in order to build new systems and processes to adapt to the new product rules; additional uncertainties on such a fundamental concept to be, at this stage, create confusion. We recommend that ESMA clarify that reverse distribution is permitted to address negative yields."
BlackRock also comments on "Reverse repo," saying, "We believe that the rules on reverse repo collateral are some of the most consequential rules in the Level 2 process. The Regulation itself forces (in particular) Government CNAV MMFs to rely on reverse repo in order to meet the strict liquidity requirements, meaning that a fund will need to, at all times, have access to reverse repo in order to be compliant with the Regulation. Repo markets in Europe have already been clearly experiencing stress at regular intervals (at quarter- and year-end especially, but increasingly at month-end as well), where market participants are experiencing supply constraints and pricing dislocation."
Finally, on "Stress testing," they add, "Stress testing funds is a critical risk management tool and we believe the MMF industry will be more robust as a result of the new requirements both in Europe and the US. We support much of what has been suggested by ESMA in the proposed Guidelines. However, we urge caution on the recommendation that managers might potentially stress test their MMFs in aggregate. We note that this specific recommendation originates from the FSB recommendations on potential structural vulnerabilities related to specific asset management activities." (Note: Our upcoming European Money Fund Symposium, which will take place Sept. 25-26 in Paris, France, will feature a number of sessions addressing pending European money fund reforms.)
