A press release entitled, "BlackRock Intends to Launch Environmentally-Aware Money Market Fund" tells us, "BlackRock Cash Management has filed an initial registration statement for the BlackRock Liquid Environmentally Aware Fund ('LEAF'), a series of the BlackRock Funds, with the U.S. Securities and Exchange Commission. LEAF is a prime money market fund that will seek to provide clients with as high a level of current income as is consistent with liquidity and preservation of capital, while giving consideration to select environmental criteria." We quote from the release, and also review recent briefs from Wells Fargo Funds and S&P Global Ratings, below. (See the new fund filing here and see also Reuters' "BlackRock Plans Environmentally Conscious Money Market Fund".)
The release explains, "LEAF will seek to invest in a broad range of money market instruments whose issuer or guarantor, in the opinion of BlackRock, at the time of investment has better than average performance in environmental practices. BlackRock will use data from independent ESG ratings vendors and may employ the use of its own models. The Fund will also prohibit any investments in companies that earn significant revenue from the mining, exploration or refinement of fossil fuels or from thermal coal or nuclear energy-based power generation."
It adds, "In addition to LEAF's environmentally-focused investment strategy, 5% of the net revenue from BlackRock's management fee from the Fund will be used to purchase and retire carbon offsets either directly or through a third-party organization. BlackRock has also entered into an agreement with World Wildlife Fund (WWF), a leading environmental non-profit with recognized expertise and experience in environmental protection. As part of this agreement, BlackRock will make an annual payment to help further the global conservation efforts of WWF."
For more on ESG Money Market Funds, see our Sept. 7, 2018 News, "DWS ESG Liquidity Goes Live; Federated Explains Prime Private Fund," and our Aug. 13 News, "DWS Converts Variable NAV to DWS ESG Money Fund, First ESG Offering."
In other news, Wells Fargo Asset Management poses the question: "What's Attracting Investors to Prime MMFs?" They tell us, "Prime MMF yields have become attractive compared with other asset classes. As the Federal Open Market Committee (FOMC) continues to remove its monetary policy accommodating, yields on prime MMFs have outpaced government MMF yields, thereby having created a wider yield differential. At the same time, prime MMFs have experienced minimal NAV movement, consistently high liquidity, and greater diversity of holdings within the funds. As a result, investors have become more comfortable with the operational aspects of prime MMFs."
Wells continues, "The stringent liquidity, maturity, and diversification requirements mandated by the most recent SEC rules have led to a more stable product, especially in terms of liquidity and minimal NAV fluctuations. At Wells Fargo, these rules are consistent with the conservative manner in which the Heritage Money Market Fund has always been managed, emphasizing preservation of capital and high levels of liquidity. The yield advantage presented by prime MMFs has given investors an economic incentive to invest in these funds."
They point out, "Investors appear to have become more comfortable with the idea of fees and gates now that they have had an extended period to observe weekly liquidity levels in prime MMFs. Fund managers have typically maintained weekly liquid asset levels well above the 30% threshold. The industry has done this, in part, to avoid triggering this event."
The piece explains, "At Wells Fargo Asset Management, we've consistently maintained substantial liquidity well in excess of the 30% threshold in our flagship prime MMF, the Wells Fargo Heritage Money Market Fund. We believe the most important aspect of liquidity management is understanding the liquidity needs of the different investors in the fund. We have established know-your-customer procedures that allow for ongoing and regular communication between the sales and investment teams. As a result, the portfolio management team is better able to understand the nature and timing of the fund's cash flows and manage the fund's liquidity accordingly."
Wells Fargo expects trends favoring Prime MMFs to persist, writing, "Because preservation of principal and daily liquidity have remained the most important aspects of prime MMFs, we believe investors will continue to reposition into them. Cash investors may be aided in their decisions about where to invest their short-term cash by considering three factors related to prime MMFs: the volatility of a fund's NAV, its liquidity level, and the size of the fund."
They conclude, "Investors reexamining prime MMFs now have two years of empirical data to review since the 2016 SEC rules were implemented. To recap, these rules included additional liquidity and diversification requirements as well as maturity restrictions. Investors may now see that the rules have made a difference in the construction of portfolios and, in response, liquidity levels have been consistently high and NAV volatility has been low even as the FOMC has continued to raise rates. In addition, prime MMFs still offer same-day liquidity and may be reported as cash."
Finally, S&P Global Ratings welcomed the implementation of the EU's money market regulation as "an important milestone" on Jan. 21 (the original compliance target deadline), but was quick to note that the finalization of the transition has been pushed back to March 21. The agency released the brief, "EU-Domiciled Money Market Funds Still Scrambling For Regulatory Approval Following Reforms," which reviews the regulatory delay granted to euro-denominated funds plagued by negative yields. (See yesterday's Crane Data News, "European MMF Reforms Going Live, or Not? Economist Swipes at RDM Kill.")
S&P writes, "Many euro-denominated funds had used share-cancellation mechanisms (also known as reverse-distribution mechanisms) to maintain their net asset value (NAV) per share when the value of their assets were affected by negative interest rates. The mechanism was favored by stable NAV MMF investors. It was recently announced, however, that such mechanisms are not allowed under the EUMMFR."
They explain, "Given the short notice, a number of money market fund sponsors have delayed the conversion of their MMFs by using Article 44 of the regulation. This will see them finalize their transition by March 21, 2019 instead. Numerous Ireland- and Luxembourg-domiciled money market funds that have had share-cancellation mechanism language in their prospectus since 2012 have used Article 44 as a backstop."
S&P comments that some of the largest European money market fund providers still await regulatory approval in Ireland and Luxembourg for revised prospectuses in time to meet the revised deadline. The update says, "The 91 Europe-domiciled funds recognized as MMFs under the EUMMFR and rated by S&P Global Ratings had approximately €711 billion in assets under management as of Dec. 31, 2018.... S&P Global Ratings ... supports a regulatory environment that promotes increased transparency, enhanced liquidity, safer investment products, and investor protection as well as a level playing field for the European money market fund industry. Our ratings on the money market funds domiciled in Europe have not been affected by the implementation of EU MMFR."
