A press release entitled, "State Street Global Advisors Launches Its First ESG Money Market Fund," tells us, "State Street Global Advisors, the asset management business of State Street Corporation (STT), today announced the launch of the State Street ESG Liquid Reserves Fund (the 'Fund') which seeks to apply financially material environmental, social, and governance (ESG) scores to the management of the Fund. The Fund is the first money market fund to offer a portfolio composed entirely of investments that meet ESG criteria at the time of purchase." (See our April 25 Crane Data News, "State Street Files to Launch ESG Liquid Reserves Fund; LEAF Now Live.")
Pia McCusker, SSGA's Global Head of Cash Management, comments, "We're proud to apply State Street Global Advisors' longstanding ESG commitment to the launch of this fund, which provides the first fully ESG-focused money market fund option by incorporating sustainable investing within a cash strategy."
She continues, "As appetites for ESG investment opportunities continue to grow, institutional investors need options across all asset classes. There's currently an industry-wide lack of ESG data that is financially material, consistently reported, and comparable across firms; using the R-Factor scoring system allows us to address this critical issue by incorporating State Street Global Advisors' expertise. This is only the beginning for the application of R-Factor as we explore further ESG-related opportunities at the institutional level."
The release explains, "The Fund uses R-Factor, State Street Global Advisors' new ESG scoring system that draws on multiple data sources and leverages widely accepted and transparent materiality frameworks to generate a unique ESG score for issuers. In particular, R- Factor leverages the Sustainability Account Standards Board's (SASB) and country-specific corporate governance frameworks and provides transparency into how and what State Street Global Advisors considers to be financially material ESG factors."
It adds, "The Fund invests in prime money market instruments that meet State Street Global Advisors' ESG criteria. The portfolio construction process is a multi-step method involving fundamental risk budget allocation, optimization, and ESG assessment. The Fund, which is domiciled in the United States and registered under the Investment Company Act of 1940 (the 'Act'), will have a floating net asset value and will be managed and operated to comply with Rule 2a-7 of the Act."
For more on ESG and "Green" money funds, see the following Crane Data News articles: "Cap Advisors Group Demystifies ESG Investing" (6/19/19), "Moody's Rates BlackRock LEAF Aaa-mf" (4/10/19), "More on Green, ESG Money Funds: What's Not There, Barron's" (2/11/19), "SSGA's 2019 Global Cash Outlook Discusses ESG MMF Challenges, Tech, AI" (2/4/19), "FT Says China's Ant Shrinks; More on BlackRock LEAF; Weekly Holdings" (1/30/19), "BlackRock to Launch Environmental MF" (1/23/19) and "DWS ESG Liquidity Goes Live; Federated Explains Prime Private Fund" (9/17/18).
In other news, Fitch Ratings published a "U.S. Money Market Fund Dashboard" brief, entitled, "Prime Money Fund Assets Grow Despite Spread Compression," which comments, "U.S. money market funds (MMFs) continue to exhibit strong asset growth. In the 12-month period through May 2019, all MMF categories saw an increase year over year. Prime funds exhibited the highest growth rate at 42%, up $193 billion for the period. Government funds grew more slowly, up $127 billion, or a 6% increase for the period, according to iMoneyNet data. From the trough in prime MMF assets around the time of reforms in November 2016 through the end of May 2019, prime MMF assets increased approximately $285 billion, or 77%."
They explain, "Yields and Market Volatility Have Driven Growth: Higher absolute yields offered by MMFs and volatility in other markets drove growth in MMF assets. The four Fed interest rate hikes in 2018 doubled prime MMF yields, from 1.09% in January 2018 to 2.20% in January 2019, improving the economics of MMF investments relative to the low yield environment over the previous years. Secondly, in the latter half of 2018, market volatility caused investors to reposition assets toward the relative safety of cash assets, including MMFs. As the Fed recently signaled a potential reversal of its tightening policy, there is some uncertainty over the direction of asset flows in MMFs if rates decline."
Fitch writes, "Prime MMFs' net asset value (NAV) stability has contributed to their growth relative to government MMFs.... Prime NAVs have been largely stable, in particular through a rising rate environment. The stability of NAVs of institutional prime MMFs was a key concern for investors leading up to MMF reform in 2016."
They state, "The high levels of liquidity maintained by prime funds increase their ability to meet regulatory required liquidity and reduce the potential for the imposition of fees or gates during periods of elevated redemptions. The potential for fees or gates was a significant deterrent for investors around the time of reform, and was a key reason for the shift of assets from prime to government MMFs at that time. The ... average prime fund weekly liquidity has increased to around 50%, from approximately 40% before the reforms. Funds' ability to meet redemptions is a key consideration in Fitch's rating analysis of MMFs."
Finally, they say, "NAV stability and high liquidity have led to stronger growth in prime funds relative to government funds. The stronger growth in prime funds has sustained despite a compression in the net yield spread between prime and government funds."
