Yesterday, Fitch Ratings hosted a webcast, "Update on Delays to European MMF Reform Process," which told listeners that most European money funds that have pushed back their compliance dates under the new regulations are targeting February conversion dates. Alastair Sewell and Minyue Wang of Fitch reviewed recent developments, and responded to questions about the delay in instituting changes for Irish and Luxembourg fund regulators. (See our Jan. 22 News, "European MMF Reforms Going Live, or Not? Economist Swipes at RDM Kill Our News.")
The rating agency's "European MMF Reform: January Dashboard," notes, "The effective deadline for MMF reform conversion (involving more than EUR280 billion of European short-term money market funds, of which around 25% is euro-denominated) has been pushed back to March 21 from Jan. 21, 2019. We understand that around 80% of the remaining conversions will occur in February, with a small amount (around 2%) in March and the timing of the remainder to be confirmed."
Re-submitted applications by euro-denominated MMFs to comply with directives to remove use of reverse-distribution mechanisms, also known as share cancellations previously employed by funds showing negative yields, will result in "fewer choices for investors in euro-denominated funds than in funds denominated in other currencies. Funds have to be compliant by March 21, after notifying their shareholders of the approved conversions," it detailed.
Fitch has observed recent asset outflows from euro funds that it rates. It stated, "Looking at weekly flows (% of AUM) by currency since end-October 2018, euro flows have been negative in 2019 so far. However, early January euro outflows are similar to last year's," due mainly to seasonal factors. It added, "Fitch does not anticipate liquidity issues at this stage given the ample O/N (31% on average) and 7D (38% on average) liquidity levels held by euro funds, but we will monitor developments closely."
The presentation affirmed that "Fitch considers MMFs [to be] cash and cash-equivalent under its corporate rating criteria." It added that AMF, the French regulator, has modified its position, now stating that "funds authorised under the MMF Regulation would benefit from a presumption of eligibility for classification as cash equivalents in investors' IFRS accounts."
Options for fund managers were also cited. "The end of RDM renders euro-denominated LVNAVs and public-debt CNAVs with distributing (or stable price) share classes untenable. Potential solutions include converting euro CNAVs to short-term variable NAV funds or LVNAVs with accumulating ('decumulating' in fact given the negative yield environment in euros) share classes only. Accumulating (variable price) share classes comprised only 22% of euro Prime AUM to be converted, with the rest being distributing share classes," as of Jan. 11, said Fitch.
In other news, ICI's latest "Money Market Fund Assets" report shows that money fund assets fell in the latest week. Prior to this week, MMFs had posted gains in 12 out of 14 weeks, and they've still increased by $156.3 billion, or 5.4% since the last week in October. ICI's weekly series shows Retail MMFs decreasing $3.3 billion, or -0.3%, while Institutional MMFs dipped by $10.2 billion, or -0.5%.
They write, "Total money market fund assets decreased by $13.53 billion to $3.04 trillion for the week ended Wednesday, January 30, the Investment Company Institute reported today. Among taxable money market funds, government funds decreased by $11.23 billion and prime funds increased by $388 million. Tax-exempt money market funds decreased by $2.69 billion." Total Government MMF assets, including Treasury funds, stood at $2.302 trillion (75.8% of all money funds), while Total Prime MMFs reached $595.0 billion (19.6%). Tax Exempt MMFs totaled $141.3 billion, or 4.7%.
ICI explains, "Assets of retail money market funds decreased by $3.31 billion to $1.19 trillion. Among retail funds, government money market fund assets decreased by $3.62 billion to $695.71 billion, prime money market fund assets increased by $2.99 billion to $359.00 billion, and tax-exempt fund assets decreased by $2.68 billion to $131.96 billion." Retail assets account for over a third of total assets, or 39.1%, and Government Retail assets make up 58.6% of all Retail MMFs.
The release adds, "Assets of institutional money market funds decreased by $10.22 billion to $1.85 trillion. Among institutional funds, government money market fund assets decreased by $7.61 billion to $1.61 trillion, prime money market fund assets decreased by $2.60 billion to $236.04 billion, and tax-exempt fund assets decreased by $12 million to $9.38 billion. Institutional assets accounted for 60.9% of all MMF assets, with Government Institutional assets making up 86.7% of all Institutional MMF totals.
